Legal & Regulatory News

ESMA considering ESG fund names guidelines

On 2 October 2023, the European Securities and Markets Authority (ESMA) published a paper (the paper) entitled, ‘ESG names and claims in the EU funds industry’. The paper provides that funds are increasingly using ESG-related language in their names – reflecting regulatory efforts on disclosure requirements. Within the paper, ESMA also state that “the evolution of ESG language in fund names demonstrates the usefulness of ESMA’s recent public consultation on guidelines to ensure fund names accurately reflect their portfolio from an ESG perspective". ESMA argues that some asset managers have been using Article 8 and 9 of the Sustainable Finance Disclosure Regulation (SFDR) as proxy ESG labels – leading to confusion and raising greenwashing concerns.

The paper follows from ESMA’s consultation on draft proposals for ESG fund names which was published in November 2022. This consultation suggested that any fund with any ESG-related words in their name should have “a minimum proportion of at least 80% of its investments […]  used to meet the environmental or social characteristics or sustainable objectives in accordance with the binding elements of the investment strategy, as disclosed in Annexes II and III of SFDR Delegated Regulation”.

This diverges to some extent from the SFDR – which states that funds with sustainability-related terms should allocate at least half of their assets to sustainable investments.

The European Commission’s recent consultation on SFDR aims address the uncertainty around Article 8 and 9 on disclosure categories – asking respondents if the SFDR is an ‘appropriate legal instrument to deal with the accuracy and fairness of marketing communications and the use of sustainability-related names for financial products’.

ESMA is yet to announce a timeline for a final proposal.

Click here to read ESMA’s ‘ESG names and claims in the EU funds industry’ paper.

Click here to read ESMA’s consultation on ESG fund names.

Click here to read responses to ESMA’s consultation.

Click here to read on the SFDR consultation.