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.
5. How do the Guidelines affect S&P DJI and its clients? The Guidelines do not apply to indices or index providers directly. The Guidelines do impose fund design requirements (i.e., quantitative minimum investment thresholds and minimum safeguards) where specific ESG- or sustainability-related terms are used in the fund name. The Guidelines have an indirect application to S&P DJI due to the close connection between an index name and the name of a fund that is tracking such index. As of the time of publication of this FAQ, no S&P DJI index has been designed to meet the requirements of the Guidelines. Because of this, clients using a current S&P DJI ESG/sustainable index name within the name of a European investment fund may not be compliant with the Guidelines. Therefore, to meet the requirements of the Guidelines, clients have a choice to either change the name of the fund or change the investment criteria of the fund. To help our clients meet the Guidelines, S&P DJI has decided to change the index name for specific ESG/sustainable indices used with funds in the EU.
6. What actions will S&P DJI be taking to help our clients in response to the Guidelines? As announced on Oct. 7, 2024 and Dec. 20, 2024, to help facilitate our clients, S&P DJI will be changing the names of some sustainability- and ESG-related indices only. As of the date of this FAQ, no other changes to S&P DJI’s ESG/sustainability indices have been announced because of the Guidelines.
7. Which indices are changing their names? As outlined in the index announcements published Oct. 7, 2024 and Dec. 20, 2024, approximately 238 headline indices, spanning 17 methodologies, will change their names to accommodate index users in light of the Guidelines. Some methodology names will also be updated to reflect the new names of their corresponding indices, as announced. Please review the Index Announcements for more details. Exhibit 1 provides the new names for the four headline indices that have been announced.
