The European Securities and Markets Authority (ESMA) has launched a consultation to develop guidelines on funds' names with ESG or sustainability-related terms. In terms of the proposed guidelines, ESMA aims to address risks of 'greenwashing' where funds are named as green or socially sustainable despite failing to meet sufficient sustainability standards commensurate with that name.
The guidelines will apply quantitative thresholds to determine whether the fund name is fair, clear and not misleading. In particular, ESMA is proposing that funds whose name contains ESG or impact-related words should have at least 80% of their respective portfolio invested in assets which meet the environmental or social characteristics, or sustainable investment objectives. In addition, if a fund name contains the term 'sustainable' or any word deriving from that term, it should allocate 50% of the abovementioned 80%, to 'sustainable investments' as defined by the SFDR (Regulation (EU) 2019/2088).
ESMA is receiving feedback to the consultation document by the 20th February 2023, and plans to issue the final Guidelines by Q2/Q3 2023. The Guidelines would become applicable from three months following publication, and investment funds launched prior to that date will have six months to either bring their investments in line with these Guidelines, or change the fund's name. For further information on how to submit your comments.
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