1. Who is ESMA? The European Securities and Markets Authority (ESMA) is the EU’s financial markets regulator and supervisor.
2. What are the ESMA Guidelines? The ESMA Guidelines on funds’ names using environmental, social and governance (ESG) or sustainability-related terms aim to ensure that European Undertakings for the Collective Investment in Transferable Securities (UCITS) and alternative investment funds (AIFs) present clear information on their investment products and prevent greenwashing. The Guidelines aim to improve the level of transparency around investment products, protect investors, prevent misleading claims about the sustainability credentials of funds and promote market integrity. Fund providers must provide clear and accurate information to investors and ensure consistency and reliability in ESG-related fund names. Key aspects include:
- Quantitative Minimum Investment Thresholds: Funds must allocate a certain percentage of their portfolio to investments with specific ESG- and/or sustainability-related attributes and implement minimum safeguards to use ESG- or sustainability-related terms in their names;
- Clear Disclosure: Funds should provide transparent information about their ESG strategies and criteria; and
- Avoiding Misleading Names: Funds should ensure that fund names accurately reflect their ESG characteristics.
3. Who do the Guidelines apply to? The ESMA Guidelines apply to (i) management companies of UCITS, within the meaning of the UCITS Directive, including UCITS that have not designated such management company, (ii) alternative investment fund managers (AIFMs) within the meaning of the Alternative Investment Fund Managers Directive (AIFMD), including internally managed AIFs, (iii) the managers of European venture capital funds, European social entrepreneurship funds, European long-term investment funds and money market funds and (iv) national competent authorities. There is some uncertainty whether the Guidelines apply to (a) funds that are closed to further subscription by investors and (b) non-EU AIFMs and non-EU AIFs marketed in the EU. Finally, the Guidelines do not capture all financial products in the scope of the Sustainable Financial Disclosure Regulation.
4. When do the Guidelines apply? National competent authorities must notify ESMA by Oct. 21, 2024, whether they (i) comply, (ii) do not comply, but intend to comply, or (iii) do not comply and do not intend to comply with the Guidelines. New funds are expected to comply with the Guidelines starting Nov. 21, 2024. Existing funds are expected to comply with the Guidelines by May 21, 2025.
