Sustainability in asset management is not a new topic. ESG scores, ESG funds, and ESG-focused investments have been part of the conversation for years, with players across the industry investing heavily in data and information, says Jamil Jiva, global head of asset management at Linedata.

However, the journey towards ESG adoption in Europe has been uneven and, in some respects, slower compared to the United States. Over the last two years, this has started to change, with a sharp increase in investments.

In 2022, ESG fund investments in Europe totalled €3.2 billion; by 2024, this figure has more than doubled to exceed €7 billion.

ESG funds are sometimes viewed as "safe investments" or even as essential for projecting an image of relevance in the market.

However, the rapid growth of these funds has also piqued the interest of regulators, raising questions about whether all ESG-branded funds truly meet the requisite criteria. In response to these concerns, the European Securities and Markets Authority (ESMA) has introduced stricter regulations on the naming of ESG funds to tackle greenwashing.

Since 21 November 2024, funds with the term ‘ESG’ or ‘sustainable’ in their name must have at least 80 per cent of their investments tied to environmental characteristics. Equivalent rules came into effect in the UK on 2 December.

Over the past decade, the number of funds claiming ESG investment criteria or adopting ESG lingua franca has quadrupled, creating confusion over whether all such funds are genuinely sustainable or socially committed.

The new ESMA regulation aims to address this confusion and marks the first step towards a long-discussed “clean-up” of the ESG fund landscape. This move is expected to provide greater clarity for investors about what they are actually investing in.

Transparency has been a persistent challenge in the financial industry, and ESMA’s action represents a significant step forward.

This regulation should be seen as a priority for all market participants involved in ESG investments in Europe.
In the UK, growing concerns about greenwashing have resulted in the introduction of equivalent new sustainability rules.

These include an anti-greenwashing rule, investment labelling to define and standardise sustainability-focused funds, and enhanced disclosure requirements for retail investors. While these measures align with similar efforts in the EU, the UK has taken a more gradual approach to implementation, leaving some to argue that it risks falling behind.

The EU has been tackling sustainability regulation for some time. In contrast, the UK is still finalising frameworks like the Green Taxonomy. However, the UK’s broader ambition to lead in sustainable finance suggests that it aims to use these new measures to catch up and potentially surpass EU standards by offering greater clarity and investor protection.

This dynamic underscores a growing regulatory focus across Europe on building trust in ESG investments, with both regions aiming to address greenwashing and create robust, transparent frameworks for sustainable finance.

By Jamil Jiva, global head of asset management at Linedata