ESMA - Consultation on Guidelines for the use of ESG or sustainability-related terms in funds' names

Funds’ names are a powerful marketing tool. In order not to mislead investors, ESMA believes that ESG- and sustainability-related terms in funds’ names should be supported in a material way by evidence of sustainability characteristics or objectives that are reflected fairly and consistently in the fund’s investment objectives and policy. ESMA is particularly seeking stakeholders’ feedback on the introduction of quantitative thresholds for the minimum proportion of investments sufficient to support the ESG or sustainability-related terms in funds’ names.

The main elements of the consultation paper on draft guidelines for the use of ESG or sustainability-related terms in funds’ names on which ESMA is seeking stakeholders’ feedback are:

- a quantitative threshold (80%) for the use of ESG related words;

- an additional threshold (50%) for the use of “sustainable” or any sustainability-related term only, as part of the 80% threshold;

- application of minimum safeguards to all investments for funds using such terms (exclusion criteria);

- additional considerations for specific types of funds (index and impact funds).

ESMA proposes that the draft guidelines would become applicable from 3 months after the publication of their translation on the ESMA website. Furthermore, a transitional period of 6 months is suggested for those funds launched prior the application date, in order to comply with the Guidelines.

Next steps

ESMA will consider the feedback it receives to this consultation after it closes on 20 February 2023 with a view to finalising the guidance afterwards.