ESMA Launches a Consultation on Guidelines for the Use of ESG or Sustainability-Related Terms in Funds’ Names

Published on: 18 November 2022
by KnowESG
COP-27

The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, is seeking input on draft guidelines on the use in funds’ names of ESG or sustainability-related terms.

Funds’ names are a powerful marketing tool. In order not to mislead investors, ESMA believes that ESG- and sustainability-related terms in funds’ names should be supported materially by evidence of sustainability characteristics or objectives that are reflected fairly and consistently in the fund’s investment objectives and policy. ESMA is especially interested in hearing from stakeholders about putting quantitative thresholds in place for the minimum amount of investments needed to support ESG or sustainability-related terms in the funds' names.

Verena Ross, ESMA Chair, said:

“With this consultation, ESMA continues to prioritise promoting transparency and tackling the risk of greenwashing as identified in the ESMA Strategy and Sustainable Finance Roadmap.

"This consultation seeks stakeholders' views on a proposal to promote supervisory convergence in the assessment by NCAs of the use of ESG or sustainability-related terms in funds’ names.

"The objective is to ensure that investors are protected against unsubstantiated or exaggerated sustainability claims while providing both NCAs and asset managers with clear and measurable criteria to assess names of funds including ESG or sustainability-related terms.”

The main elements of the consultation paper on draft guidelines for the use of ESG or sustainability-related terms in funds’ names on which ESMA is seeking stakeholders’ feedback are:

  • A quantitative threshold (80%) for the use of ESG-related words;

  • An additional threshold (50%) for the use of “sustainable” or any sustainability-related term only, as part of the 80% threshold;

  • Application of minimum safeguards to all investments for funds using such terms (exclusion criteria);

  • Additional considerations for specific types of funds (index and impact funds).

ESMA proposes that the draft guidelines would become applicable 3 months after the publication of their translation on the ESMA website. Furthermore, a transitional period of 6 months is suggested for those funds launched before the application date, to comply with the Guidelines.

Source: ESMA

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