Finally Fossil-Free? What the ESMA Naming Guidelines and the Proposed SFDR Revision Can Do to Curb Greenwashing in ESG Funds

In the past, it was particularly difficult for retail investors to understand how climate-friendly the investments of a given ESG fund were. Many funds signaling sustainability were simultaneously investing heavily in fossil fuel companies. This can easily mislead retail investors who are seeking to make sustainable investment decisions. At the same time, it hinders the transition to a climate-friendly, future-proof EU financial system and undermines trust in policymakers’ and financial supervisors’ ability to deliver on this task.

Our study has two overarching goals. On the one hand, it examines whether the recently introduced ESMA naming guidelines have helped reduce greenwashing – at least with regard to climate – and improved transparency in the ESG fund market. On the other hand, it assesses the potential effects of the European Commission's proposed SFDR revision (SFDR 2.0).