Urgewald recently attracted lots of attention with a study according to which more than 4,700 of the 14,291 Article 8 and 9 funds analysed invested in fossil fuel companies. Names such as Shell, Total Energies and ExxonMobil were particularly strongly represented. According to the NGO, their expansion plans in the oil and gas sector are fundamentally contradictory to the Paris Agreement climate goals. „Those who finance fossil fuel expansion in times of climate overheating are jeopardising our future. Such securities have no place in ESG funds,“ says Julia Dubslaff, analyst at Urgewald.

Many fund providers reject the accusation – citing regulatory transition. Union Investment, for example, announced a new ESG guideline in June 2024 that took effect from 1 April 2025. From this date, the fund company's ESG funds will no longer be allowed to invest directly in companies that make their money from the extraction of gas or oil. Exclusions for tar sands have already applied since January. Union Investment plans to divest from all oil and gas producers by 2030 unless they present a credible transformation strategy. „We not only invest in companies that are already 100% sustainable, but also in those that are undergoing a credible transition,“ emphasises Henrik Pontzen, Chief Sustainability Officer at Union Investment.

DWS refers to existing ESG standards. The „DWS ESG Investment Standard“ filter, which largely excludes investments in companies with fossil-fuelled expansion plans, already applies to funds with ESG or sustainability terms in their name. This will be fully adapted to the new requirements of the securities regulator ESMA from May 2025. „Urgewald's analysis refers to a cut-off date when many of these measures did not yet apply. Our strategies have long been in the process of being revised,“ said a spokesperson for the company.

Ingo Speich, Head of Sustainability & Corporate Governance at Deka, also takes a critical view of the analysis: „We do not fully share Urgewald's criteria and do not understand the volumes described", he says. Deka relies on an internal procedure: „We have our own system with an ESG risk model in addition to our exclusion criteria. We would still allow OMV, but not other stocks. It depends on several factors.“

In fact, the new ESMA guidelines on fund naming will only introduce binding thresholds from 21 May 2025: funds with terms such as „sustainable“, „green“ or „impact“ may only be named as such if at least 80% of the portfolio is ESG-compliant and certain exclusions apply – including a maximum revenue share of 10% for oil and 50% for gas extraction. A zero-tolerance rule applies to „unconventional energies“ such as oil sands, fracking, or Arctic exploration.

The new regulation applies to funds with ESG terms in their name, in accordance with the ESMA guidelines – and this is the point of criticism from many observers. According to Urgewald, around 9,400 of the „green“ funds analysed are not affected by the new ESMA regulation as they do not have ESG terms in their names. The content may be sustainable – but without a label, the stricter rules do not apply. „The ESMA guideline brings more clarity for consumers,“ says a DWS spokesperson, „but it only applies to funds that have ESG in their name.“

At the same time, there is a differentiation on the regulatory side that often gets lost in the debate. A spokesperson for the fund association BVI emphasises that "it is wrong to classify Article 8 and 9 funds as ESG products across the board. Articles 8 and 9 are transparency regulations on sustainability. Article 8 in particular applies automatically as soon as a fund includes binding sustainability-related features in its investment strategy. These can also be just a few exclusions, such as tobacco or banned weapons.“

No specific sustainability standard is associated with Article 8 status. This categorisation illustrates that the often-cited classification according to Article 8 or 9 initially only says something about the disclosure framework – not necessarily about the ESG quality.

A look at specific funds shows how broad the spectrum is. According to Urgewald, German ESG products such as UniNachhaltig Aktien Infrastruktur, DWS Invest ESG Next Generation Infrastructure, and Deka UmweltInvest, had particularly high fossil fuel investment ratios on the reporting date of the study. These funds have ESG terms in their names and will therefore fall under the new ESMA requirements from May 2025. Providers will then only have the choice of divesting or renaming. The latter could be legally sufficient, but would damage public credibility. However, the institutions point out that they are in the middle of the changeover, or are considering a name change. However, not all the detailed rules are on the table yet.

While the ESMA guideline for fund names closes specific gaps in the area of sustainable investment funds, the more comprehensive reform of the Sustainable Finance Disclosure Regulation (SFDR) is intended to take a systemic approach. The EU Commission wants to change the unsatisfactory state of the SFDR: A reform proposal is expected in the second half of 2025. Binding minimum ESG requirements, an EU label for sustainable funds and stronger integration with other legal acts such as Mifid II or the EU taxonomy are being discussed, among other things.

A key question will be how transformational investments are defined and regulated in future. This is because many funds – for example from providers such as Allianz Global Investors – argue that they can exert influence and thus drive change by investing in fossil fuel companies. Whether this form of „engagement“ is sufficient to fulfil ESG criteria is disputed among experts.

Even if Urgewald points to a problem, the media exaggeration is not without its weaknesses. The analysis is based on 31 August 2024 – a date on which many new ESG guidelines were not yet in force. Urgewald itself admits in a statement that many announced changes had not yet been implemented at the time.

However, it remains undisputed that the ESG industry is facing a new alignment – both in terms of regulation and reputation. In future, the decisive factor for investors will be whether a fund makes genuine exclusions, delivers impact metrics, and pursues a consistent sustainability strategy – regardless of the wording in its name. At the same time, providers will have to be more transparent about the strategies they pursue and how they deal with transitional investments.