Harmonising ESG and sustainable fund names across the EU – New ESMA Guidelines

Further to the public statement issued on 14 December 2023, ESMA has issued a final report outlining the guidelines in relation to fund names which utilise ESG or sustainability-related terms (the “Guidelines”).  The Guidelines are applicable to, inter alia, asset managers, including UCITS Management Companies, Alternative Investment Fund Managers and self-managed collective investment schemes and provide a minimum threshold of 80% of investments which should be used to meet environmental, social characteristics or sustainable investment objectives.  The Guidelines also apply a number of exclusion criteria for different terms used in fund names.

Furthermore, it should also be noted that, in line with the Guidelines, a temporary deviation from the applicable threshold and exclusions should be treated as a passive breach and corrected in the best interest of the investors, provided that the deviation is not due to a deliberate choice by the fund manager.

The Guidelines will be translated into all EU languages and will subsequently be published on ESMA’s website. They will start applying three months after that publication.  The transitional period for funds existing before the application date will be six months after that date. Any new funds created after the application date should apply the Guidelines immediately in respect of those funds.