ESMA Issues Final Report on Fund Names Utilizing ESG or Sustainability-Related Terms

The European Securities and Markets Authority (ESMA) has released a final report outlining guidelines for fund names that incorporate environmental, social, and governance (ESG) or sustainability-related terms. This move comes following a public statement issued last December.

Key Requirements

According to the guidelines, asset managers, including:

• UCITS Management Companies
• Alternative Investment Fund Managers
• Self-managed collective investment schemes

must use at least 80% of their investments to meet environmental, social characteristics, or sustainable investment objectives. The guidelines also impose exclusion criteria for different terms used in fund names.

Temporary Circumstances and Deviations

In the event that a fund fails to meet these requirements due to temporary circumstances, such as market fluctuations, ESMA has stipulated that this will be treated as a passive breach and corrected in the best interest of investors, provided the deviation is not deliberate. However, any deviation caused by intentional choice by the fund manager will result in more severe consequences.

Implementation Timeline

The guidelines, which have been translated into all EU languages, are set to be published on ESMA’s website before taking effect three months later. Existing funds with a pre-application date will have six months to comply with the new regulations, while any newly created funds must adhere to these guidelines immediately upon inception.

Aim and Impact

With this move, ESMA aims to ensure greater transparency and accountability in the financial sector, particularly in Malta where fund management is a significant industry. This development is expected to bring about positive changes in the way funds are managed and reported, ultimately benefiting investors and the environment.