ESG Related Fund Names – Highwire Extensions

Overview

In May 2022, ESMA published principle-based guidance for funds’ names with ESG and sustainability-related terms. Click here for details.

To supplement this, on 18 November 2022, ESMA published its consultation paper on guidelines for naming funds’ using ESG or sustainability-related terms.

The Guidelines seek to ensure funds’ names accurately reflect the investment objectives, policy and strategy of the fund as described in its documentation.

The Guidelines will apply to:

UCITS management companies,
Alternative investment fund managers (AIFMs),
EuVECAs,
EuSEFs and
ELTIF managers.

The CP provides indicating quantitative thresholds for the use of ESG and sustainability related terminology in funds’ names. This includes:

If a fund has the word “sustainable” or any other term derived from it in its name, it should allocate within the 80% of “ESG” investments at least 50% of minimum proportion of sustainable investments as defined under the Sustainable Finance Disclosures Regulation (SFDR).
If a fund has any ESG-related words in its name, a minimum proportion of at least 80% of its investments should be used to meet the environmental or social characteristics or sustainable investment objectives in accordance with the binding elements of the investment strategy, as disclosed under the SFDR Delegated Regulation.

ESMA expects to issue the final Guidelines by Q2/Q3 2023.