ESMA issues Final Guidelines on ESG Fund Names

The European Securities and Markets Authority (“ESMA”) has published its final guidelines (here) on funds’ names using ESG or sustainability-related terms (the “Guidelines”).  The Guidelines seek to ensure that ESG and sustainability-related terms in funds’ names are supported in a material way by evidence of sustainability characteristics or objectives that are reflected fairly and consistently in the funds’ investment objectives and policy documents.

To whom do the Guidelines apply?

The Guidelines apply to UCITS management companies (including any UCITS which has not designated a UCITS management company), alternative investment fund managers (including internally managed AIFs), EuVECA, EuSEF, ELTIF and MMF managers (“Fund Managers”), as well as to competent authorities.

It should be noted that within two months of publication, competent authorities to which the Guidelines apply must notify ESMA whether they (i) comply, (ii) do not comply, but intend to comply, or (iii) do not comply and do not intend to comply with the Guidelines.

What are the thresholds under the Guidelines?

The Guidelines can be summarised such that:

• a fund using transition-, social-, or governance-related terms within its name should:
  • meet an 80% threshold linked to the proportion of investments used to meet environmental or social characteristic or sustainable investment objectives in accordance with the binding elements of the fund’s investment strategy; and 
  • exclude investments in companies referred to in Article 12(1)(a) to (c) of Commission Delegated Regulation (EU) 2020/1818¹.
• a fund using environmental- or impact-related terms within its name should:
  • meet an 80% threshold linked to the proportion of investments used to meet environmental or social characteristic or sustainable investment objectives in accordance with the binding elements of the fund’s investment strategy; and
  • exclude investments in companies referred to in Article 12(1)(a) to (g)² of Commission Delegated Regulation (EU) 2020/1818.
• a fund using sustainability-related terms within its name should:
  • meet an 80% threshold linked to the proportion of investments used to meet environmental or social characteristic or sustainable investment objectives in accordance with the binding elements of the fund’s investment strategy;
  • exclude investments in companies referred to in Article 12(1)(a) to (g) of Commission Delegated Regulation (EU) 2020/1818³; and
  • commit to invest meaningfully in sustainable investments referred to in Article 2(17)⁴ of SFDR⁵.

In cases of a combination of terms, use of transition, sustainability- and impact-related terms, and for funds designating an index as a reference benchmark, further criteria are specified in the Guidelines.

When do the Guidelines apply?  

The Guidelines will be translated into all EU languages, and will subsequently be published on ESMA’s website.  They will start applying three months after that publication.

Fund Managers of new funds will be expected to comply with the Guidelines in respect of those funds from the date of application.

Fund Managers of funds existing before the date of application will be expected to comply with the Guidelines in respect of those funds from six months after the date of application.

For any queries, contact a member of our Investment Management Group.

Also contributed to by David O’Keeffe Ioiart