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ESMA seeks industry input on sustainability-related fund names

ESMAThe European Securities and Markets Authority (ESMA) is seeking feedback from the funds industry on draft guidelines on the use of sustainability and ESG-related terms in product names.

In an attempt to quell greenwashing, the regulator has said fund names should be “supported in a material way” by evidence of sustainability characteristics or aims and that these should be reflected “fairly and consistently” in investment objectives and policies.

ESMA is also seeking to implement minimum thresholds for ESG and sustainability-linked investments for funds using such terms in names.

Verena Ross, ESMA chair, said: “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 guidelines have proposed a quantitative threshold of 80% for the use of ESG-related terms and an additional 50% threshold for the use of sustainable or related terms, as part of the 80% threshold mark.

Feedback has also been requested on exclusion criteria and particular considerations for index and impact funds.

ESMA suggested the draft guidelines become applicable three months after publication on its website. A transitional period of six months has also been suggested for products launched prior to the application date.

Feedback will be considered after the consultation closes on 20 February 2023.

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