UBS is renaming over 400 funds – what’s behind the new sustainability names

UBS is renaming over 400 funds – what’s behind the new sustainability names

On May 21, 2025, new requirements from the European financial regulator ESMA for the naming of ESG funds came into force. These measures are intended to ensure greater transparency and clarity for investors interested in sustainable investments. Against this background, many fund companies have renamed their funds without, however, substantially revising their investment strategies. The focus is particularly on the major bank UBS, which has renamed around half of its affected funds and is therefore one of the most active players.

As part of this wave of renaming, terms such as “sustainable”, “climate” or “ESG” were replaced in favor of softer formulations such as “selection”, “screened” or “committed”. However, these new terms are not subject to the same regulatory requirements and allow funds to continue investing in climate-damaging companies. A study by Finanzwende, Urgewald and Facing Finance shows that 674 funds across Europe have been renamed, with 427 of these funds having direct fossil investments with a total value of around 13.7 billion euros.

Regulatory requirements and their effects

The new ESMA guidelines require funds with certain sustainability terms in their names to exclude fossil fuel companies and to invest at least 80 percent of the fund assets in accordance with the strategy mentioned in the name. This sets out the approach of capital management companies (KVGen), which must ensure that the information on their products is correct and clear. This is particularly highlighted in Directive (EU) 2024/927. However, Alison Schultz from Finanzwende criticizes the renaming as inadequate because it does not represent any real change and abuses investors' trust.

What is particularly noticeable is that UBS removed the “Sustainable” designation during the changes and now labeled “Watchlist” funds that were previously labeled as environmentally friendly. In addition to UBS, other companies such as State Street (56%) and Northern Trust (49%) have also taken similar measures. This raises concerns about the real motivation behind these renamings.

The role of ESMA and its guidelines

ESMA has a mandate to develop guidelines on fund names that differentiate between different terms. The groups include:

• Transition-, sozial- oder Governance-verwandte Begriffe
• Umwelt- oder Impact-verwandte Begriffe
• Nachhaltigkeit-verwandte Begriffe

For example, funds that have “Transition” in their name must observe seasonal exclusions based on the Climate Transition Benchmark (CTB), while funds with “Environment” in their name are subject to strict exclusions of the Paris-Aligned Benchmark (PAB). Exclusions include companies that violate UNGC or OECD guidelines or generate high revenues from fossil fuels.

As part of the new requirements, the KVGen must meet different conditions depending on the term in the fund name. For funds with sustainability concepts, at least 50 percent of the fund volume must be invested in sustainable investments. These regulations must apply to all existing funds from May 21, 2025, unless they are adapted to the new guidelines earlier.

The deadlines are clearly set: the ESMA guidelines were published in all EU languages ​​on August 21, 2024, and BaFin announced on October 1, 2024 that it was applying the guidelines. Investors should be aware that the name of a fund has a significant impact on its investment strategy and decisions.