New Rules for Green Funds: What Investors Need to Know

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by KnowESG
KnowESG_New Rules for Green Funds, What Investors Need to Know
Stock photos by Vecteezy

The European Securities and Markets Authority (ESMA) released a final report with guidelines on how fund names can use ESG or sustainability terms.

ESMA created these guidelines to protect investors from misleading claims about a fund's sustainability focus. They also provide clear rules for asset managers to follow when using these terms in fund names.

The guidelines state that at least 80% of a fund's investments must align with its environmental, social, or sustainable goals in order to use these terms.

Also, there are specific restrictions on how certain terms can be used. For example, terms like "environmental," "impact," and "sustainability" can't be used in ways that contradict the rules for Paris-Aligned Benchmarks (PAB). Similar restrictions apply to terms like "transition," "social," and "governance" based on Climate Transition Benchmarks (CTB) rules.

The report also clarifies how these guidelines apply to funds that use a combination of terms or reference a specific index as a benchmark.

Finally, the report summarises the feedback ESMA received on their initial proposal and explains how they incorporated that feedback into the final guidelines.

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Source: ESMA

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