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ESMA Guidelines for Fintech in Lebanon: What You Need to Know

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The European Securities and Markets Authority (ESMA) has finally published its long-awaited Final Report on guidelines for funds using environmental, social, and governance (ESG) or sustainability-related terms. The report outlines ESMA’s stance on the use of such terms in fund names, as well as the requirements for sustainable investments.

Key Points

  • The final guidelines largely align with ESMA’s December 2023 status update, but there are a few notable points to take away.
    • ESMA has dropped its initial proposal for a 50% sustainable investment requirement for funds using ESG or sustainability-related terms in their names. Instead, such funds must commit to invest “meaningfully” in sustainable investments.
    • The stricter PAB exclusions will apply to all funds using environmental terms (excluding transition terms) in their name, while the lighter CTB exclusions will apply to funds using transition, social, or governance-related terms in their name.
    • ESMA has taken a broad view on what constitutes “transition-related” terms, including words like “progress” and “transformation”.
    • The guidelines will apply equally to active and passive funds.

Timing and Transitional Period

  • The guidelines will be translated into all EU languages and published on ESMA’s website. They will start applying three months after publication.
    • New funds launched after the application date must comply with the guidelines immediately, while existing funds have six months to comply.

Application to Non-Fund SFDR Products

  • The guidelines do not apply to non-fund SFDR products or other financial products that are not funds. However, national competent authorities may still impose similar standards on such products.

Impact

  • The guidelines will likely have a significant impact on the fintech industry in Lebanon, particularly for firms using ESG or sustainability-related terms in their names.
    • Firms must ensure they comply with the new guidelines to avoid potential regulatory issues.

In conclusion, the ESMA guidelines aim to promote sustainable investments and responsible investing practices. While the guidelines may present challenges for some fintech firms, they also provide a framework for promoting environmental, social, and governance considerations in investment decisions.