1Atimeforchangeinthesustainablefundmarket-ReflectionsandrecommendationsinanewregulatoryenvironmentAtimeforchangeinthesustainablefundmarket-ReflectionsandrecommendationsinanewregulatoryenvironmentMarch20252Atimeforchangeinthesustainablefundmarket-ReflectionsandrecommendationsinanewregulatoryenvironmentThispublicationisanICMAstaffpaperbenefittingfromtheinputofICMAcommitteesandmembersbutdoesnotnecessarilyrepresenttheirviews.ICMAAuthors:NicholasPfaffandÖzgürAltun.Enquiriesto:info@icmagroup.orgPressenquiriesto:pressoffice@icmagroup.orgThispaperisprovidedforinformationpurposesonlyandshouldnotberelieduponaslegal,financial,orotherprofessionaladvice.Whiletheinformationcontainedhereinistakenfromsourcesbelievedtobereliable,ICMAdoesnotrepresentorwarrantthatitisaccurateorcompleteandneitherICMAnoritsemployeesshallhaveanyliabilityarisingfromorrelatingtotheuseofthispublicationoritscontents.Likewise,dataproviderswhoprovidedinformationusedinthisreportdonotrepresentorwarrantthatsuchdataisaccurateorcompleteandnodataprovidershallhaveanyliabilityarisingfromorrelatingtotheuseofthispublicationoritscontents.©InternationalCapitalMarketAssociation(“ICMA”),Zurich,2025.Allrightsreserved.NopartofthispublicationmaybereproducedortransmittedinanyformorbyanymeanswithoutpermissionfromICMA.3Atimeforchangeinthesustainablefundmarket-ReflectionsandrecommendationsinanewregulatoryenvironmentTableofcontentsExecutivesummary4Introduction61/Thesustainablefundmarket:alargelyEuropeanphenomenon72/Integrityandgreenwashingrisksforsustainablefunds10Progressonidentifyingtherisks10Thedataremainsinconclusive103/Regulatoryinitiativesonfundnamingandcategorisation11EUSFDRDisclosuresasimplicitlabels11UKFCAcombiningvoluntarylabellingwithmandatorynamingexclusions12ESMA’santicipationoftheSFDRReviewwithitsfundnamingGuidelines144/Theimpendingreorganisationandrebrandingofthesustainablefundmarket16Rebrandingofthesustainablefundmarket16RegulatedEuropeanfundcategorisationatoddswithmarketreality?17SummaryofICMAresearchfindings18Alternativepathsformarketdevelopments195/Prioritiesforacommonroadmap20TheEUTaxonomycannotbethesinglemeasureofsustainability20Aninclusiveapproachtodefiningsustainableinvestments22Integratingandsellingtransition22Conclusion24Annex1-ICMAresearchonsustainablefundcategorisationandinvesting25Sampleparameters25Convergencearoundbroadcategories25ImpactofSFDRdisclosuresanddefinitions26Otherrelevantinsightsfromourresearch27Annex2-RegulatoryproposalsforfundcategoriesunderarevisedSFDR30Annex3-Industryandofficialsector-supportedfundlabels33Annex4-Widerinternationalregulatoryinitiatives35FundcategorisationprogressinAsia35RegulatoryinitiativesandproposalsinNorthAmerica354Atimeforchangeinthesustainablefundmarket-ReflectionsandrecommendationsinanewregulatoryenvironmentExecutivesummaryThesustainablefundmarkethasexperiencedsignificantgrowthandnowrepresentsAUMofnearUSD3.3trillion.Itremains,however,predominantlybasedinEuropewhichaccountsfor84%oftheESGopen-endedandexchange-tradedfunduniverse1.Furthermore,near60%ofeuro-denominatedpublicfundassetsarecurrentlyinvestedinArticle8andArticle9funds2.Since2022,momentumaroundsustainablefundsseemstohavesloweddownduetofactorssuchasmacroeconomiccontext,highrates,ESGpushback,aswellasgreenwashingconcernsandregulation.IntheirmainEuropeanmarket,amajorityofsustainablefundsfacethechoiceofrebranding...