Oh, those were good times. When there were just a dozen green funds with names like „Hypo Umweltfonds“ or „Activest Eco Tech“. It has been almost 30 years since Stiftung Warentest took a close look at the then-manageable segment of ESG investments. There was no sign of ESG regulation, but there was already greenwashing – only it wasn't called that back then. A weapons manufacturer was found in one fund.

Today, a dozen ESG funds have turned into hundreds, if not thousands, of products that either have a corresponding term in their name or pursue a sustainable investment strategy. Now it's about the name: Is what it says on the outside actually inside? With terms like ecology, environment, climate, sustainability, transformation, sustainability, it's not that easy. You have to know what that means. The European Securities and Markets Authority (ESMA) has taken on this difficult task. The final guidelines were published in mid-May. The new rules will come into force three months after their translations are published.

ESMA sees great importance in names, which it sees as having an impact on investment decisions. The guidelines aim to counteract the risk of greenwashing through misleading fund names. In fact, the guidelines turn out to be strict requirements. While the disclosure regulation was about transparency, it is now about substantive sustainability requirements.

The guidelines initially differentiate between six categories: „E“, „S“, and „G“ (Environmental, Social, Governance), as well as „I“ (Impact), „Su“ (Sustainable) and „T“ (Transition). These categories also include the word groups and similar terms, for example, „E“ for the environment, „climate change“, or simply „green“. And now things get complicated. For funds that have, for example, „T“, „So“, or „G“ words in their names, the following applies. If they report in accordance with Article 8 of the EU Disclosure Regulation, at least 80% of the investments must have an ecological or social impact investment strategy match. Article 9 requires 80% or more to be in line with investments that meet sustainable objectives.

Another example? „E“ and „I“ products must comply with the Paris-aligned Benchmark (PAB), which essentially excludes investments in fossil fuels. Finally, there are expanded rules for „Su“ funds and „T“ or „I“ funds. The latter must ensure that their investments are either on a path to social or environmental change or achieve a positive and measurable social or environmental impact. Funds from several groups must fulfil all conditions cumulatively. There are also some exceptions.

If you proceed systematically, it becomes complicated. The new regulation is undoubtedly well-intentioned. Perhaps it is also well made from a craftsmanship point of view. But the question is whether it serves the cause. It's about protecting investors and providing uniform rules. With so much complexity, it is doubtful whether the regulations serve the purpose. Letter combinations and abbreviations have always characterised the area of ​​sustainability. Everything can be found in the new rules.

It is questionable whether strict guidelines direct more capital into sustainable investments and protect investors. Consumer protection already exists through the law against unfair competition. Only recently, the competition centre warned the Katjes advertising with climate neutrality as misleading and was proven right before the Federal Court of Justice. What applies to fruit gums should also apply to funds.