The European Securities and Markets Authority is requiring that funds using terms related to ESG in their names invest at least 80% in assets that live up to the label.

BlackRock said it’s notifying investors of changes to well over 100 of its ESG products, as asset managers operating in Europe prepare to comply with new rules restricting what they name funds.

The European Securities and Markets Authority is requiring that funds using terms related to ESG (environmental, social and governance) in their names invest at least 80% in assets that live up to the label.

Funds with sustainability-related terms must invest at least 50% in sustainable assets, as defined by the bloc’s ESG rulebook, and some industries such as controversial weapons are excluded.

BlackRock, which had more than US$1 trillion ($1.34 trillion) in sustainable and transition funds as recently as September 2024, told clients this week that ESMA’s requirements mean it needs to make adjustments to 135 funds, according to a letter seen by Bloomberg. 

After consulting with distributors, portfolio managers and other clients, BlackRock said it made the following changes:

• The names and/or investment methodologies of 18 funds with US$42 billion of assets under management were changed to more explicitly align with investors’ transition-investing objectives.
• The sustainability characteristics of 60 funds with assets of US$92 billion were enhanced, including adoption of exclusions required for funds with sustainability-related words in their names.
• The names of 56 funds managing US$51 billion were changed to remove sustainability-related terms, after consultation with clients; the investment strategies were retained.

Asset managers across Europe are having to make similar adjustments. A January analysis by Morningstar found that 62 funds had dropped ESG and related terms from their names in the fourth quarter, with more changes expected.  

ESMA estimated last year that 6,490 mutual and alternative investment funds, or 9.6% of the 67,496 offered in Europe, would potentially be affected by the new rules, at a cost of between EUR20,000 ($28,988.40) and EUR100,000 per fund.