BlackRock Enhances Sustainability Characteristics of $92 Billion of Funds Ahead of ESMA ESG Fund Naming Rules
Investment giant BlackRock announced a series of changes to its sustainable fund lineup ahead of the implementation of new fund naming guidelines by EU markets regulator the European Securities and Markets Authority (ESMA), according to a letter to BlackRock clients seen by ESG Today.
BlackRock’s platform includes more than 500 sustainable and transition investment strategies, and the firm manages over $1 trillion of sustainable and transition assets for clients. The changes will apply to 135 funds, representing approximately $185 billion in AUM, and will include enhancing sustainability characteristics for some funds, implementing a stronger transition focus for some, and removing sustainability-related terms from others.
Notably, for funds dropping their ESG terms, BlackRock said that investment strategies, including sustainability characteristics, will remain unchanged.
The changes follow the release in May 2024 by ESMA of its finalized guidelines for the use of ESG and sustainability-related terms in investment fund names. ESMA launched the new rules after noting a sharp increase in the use of sustainability-related terms in fund names in Europe over the past several years, leading to an increased risk of greenwashing.
Under the new guidelines, funds using ESG, sustainability, or impact terms, or environmental terms such as “green,” “environmental,” or “climate,” will be required to meet investment thresholds including having at least 80% of assets in investments used to meet the sustainability characteristics of the fund, and to follow the exclusion criteria for Paris Aligned Benchmarks (PABs). PAB exclusions include companies with more than 10% of revenue from oil production or refining, 1% from coal, or 50% from gas fuels production, those with most revenues coming from emissions-intensive energy generation, as well as those involved in controversial weapons, production of tobacco.
The new guidelines also introduced a “transition” category, which includes funds labeled with terms such as “improving,” “progress,” “evolution,” and “transformation.” The transition category also includes an 80% investment threshold, while applying exclusions from the EU’s rules for Climate Transition Benchmarks (CTBs), instead of the more stringent PABs, in order to enable investment in companies deriving part of their revenues from fossil fuels.
The new guidelines come into effect on May 21, 2025. A recent study found that as many as two-thirds of funds in the EU labelled with sustainable or ESG-related terms may need to sell assets or change their names to align with new the new guidelines.
BlackRock said that the updates to its European product range were made following consultations with a significant number of clients including large distributors, product selectors and portfolio managers.
Among the changes, BlackRock said that 60 funds, representing $92 billion of client AUM will enhance their sustainability characteristics, with specific changes to some including adding the PAB exclusions. 18 funds, representing $42 billion of AUM will have new transition-related terms added to their names or will adjust investment methodologies to align with transition investing objectives, while 56 funds, representing $51 billion of AUM will have sustainability-related terms removed from their names. BlackRock added that one fund will be reclassified from Article 8 to Article 6 under the SFDR regulation, while all other Article 8 or 9 funds will maintain their classifications.
Source: esgtoday.com
