ESMA launches consultation on ESG terms

The European Securities and Markets Authority (ESMA) has launched a consultation on guidelines on the use in funds’ names of ESG or sustainability-related terms.

ESMA says it believes that ESG- and sustainability-related terms in funds’ names should be supported in a material way by evidence of sustainability characteristics. The organisation is now looking for stakeholders’ feedback on, “the introduction of quantitative thresholds for the minimum proportion of investments sufficient to support the ESG or sustainability-related terms in funds’ names”.

The main elements of the consultation are:

  • a quantitative threshold (80%) for the use of ESG related words;
  • an additional threshold (50%) for the use of “sustainable” or any sustainability-related term only, as part of the 80% threshold;
  • application of minimum safeguards to all investments for funds using such terms (exclusion criteria);
  • additional considerations for specific types of funds (index and impact funds).

ESMA proposes that the draft guidelines would become applicable from 3 months after the publication of their translation on the ESMA website. Furthermore, a transitional period of 6 months is suggested for those funds launched prior the application date, in order to comply with the Guidelines. ESMA will consider the feedback it receives to this consultation after it closes on 20 February 2023 with a view to finalising the guidance afterwards.

Verena Ross, ESMA Chair, said, “with this consultation, ESMA continues to prioritise promoting transparency and tackling the risk of greenwashing as identified in the ESMA Strategy and Sustainable Finance Roadmap. This consultation seeks the views of stakeholders on a proposal to promote supervisory convergence in the assessment by NCAs of the use of ESG or sustainability-related terms in funds’ names. The objective is to ensure that investors are protected against unsubstantiated or exaggerated sustainability claims while providing both NCAs and asset managers with clear and measurable criteria to assess names of funds including ESG or sustainability-related terms.”