Brussels (The Brussels Morning Newspaper) – The European Securities and Markets Authority (ESMA), the EU’s financial markets controller and manager, has today issued the translations in all official EU languages of its Guidelines on funds’ names employing ESG or sustainability-related terms.
How will the ESMA guidelines protect investors from misleading ESG claims?
The purpose of the Guidelines is to ensure that investors are shielded against unsubstantiated or exaggerated sustainability declarations in fund names and to provide asset managers with clear and measurable standards to assess their ability to use ESG or sustainability-related stints in fund names.
What are the key requirements of ESMA’s new ESG fund name guidelines?
The Guidelines state that to be able to use these terms, a minimum point of 80% of investments should be utilised to meet environmental, and social characteristics or sustainable investment purposes.
What exclusions apply to the use of sustainability-related terms in fund names?
The Guidelines also apply exclusion standards for different terms used in fund names: “Environmental”, “Impact” and “sustainability”-related terms: exclusions according to the regulations applicable to Paris-aligned Benchmarks (PAB); and “Transition, “Social” and “Governance”-connected terms: exclusions according to the regulations applicable to Climate Transition Benchmarks (CTB).
In matters of a combination of terms, use of transition, sustainability- and impact-related terms, and for funds representing an index as a reference benchmark, additional criteria are defined in the Guidelines. The Final Report including the guidelines also delivers a summary of the responses ESMA accepted to its consultation paper and an explanation of the process taken to address the comments received.
What steps must authorities take to comply with ESMA’s guidelines?
In the next steps, the Guidelines will be decoded into all EU languages and will subsequently be posted on ESMA’s website. They will start spreading three months after that publication. Within two months of the date of the journal of the Guidelines on ESMA’s website in all EU official languages, capable authorities to which these guidelines apply must inform ESMA whether they (i) comply, (ii) do not concede, but intend to comply, or (iii) do not comply and do not plan to comply with the guidelines.
The transitional period for reserves existing before the application date will be six months after that date. Any new funds formed after the application date should apply these Guidelines directly in respect of those funds.
