Investment Funds / ESG news: ESMA publishes guidelines on fund names

The European regulator ESMA has just published its guidelines on fund names in the context of ESG or sustainability-related terms (link in comment section). These guidelines will concern all UCITS management companies, AIFMs and ancillary entities such as EuVECAs, EuSEFs or ELTIFs. Any of those funds that have the following terms in their names will be concerned by the new guidelines:

➡ environmental related terms (such as “green”, “climate” or “ESG”)
➡ impact related terms (such as “impacting” or “impactful”)
➡ social related terms (e.g. “social” or “equality”)
➡ sustainability related terms (anything derived from that word)
➡ governance related terms (e.g. “governance” or “controversies”)
➡ transition related terms (e.g. “improve”, “progress”, “evolution”, “net zero”)

For each of these terms, certain thresholds will have to be met by the fund’s investment strategy. By way of an example, a fund that has the term “environmental” in its name should invest at least 80% into investments that meet environmental or social characteristics and exclude certain types of investments.

ESMA claims that “only” about 10% of all EU funds have such terms in their names and are therefore concerned. Some of these may need to either change their name or their investment strategy, resulting in (another) amendment to the fund documentation.

In terms of 👉 timing, the guidelines first need to be translated into all official languages; then all national regulators (such as the CSSF) will have two months to decide whether they wish to implement them (which should be a given), and another month later the guidelines will apply (for new funds). Existing funds have another 6 months (i.e. in total 9 months after the publication) to comply.