The European Securities and Markets Authority has announced it will drop the 50% threshold for sustainable investments proposed in their consultation on ESG names and terms.

On 18 November 2022 ESMA launched a consultation with asset managers on guidelines on funds’ names using ESG or sustainability-related terms. Following feedback from the industry, ESMA has said that the proposed introduction of a threshold of 50% in sustainable investments for the use of sustainability-related words in funds’ names will be dropped.

ESMA says it considers it more appropriate that sustainability-related funds should:

• Apply the 80% minimum proportion of investments used to meet the sustainability characteristics or objectives,
• Apply the Paris-aligned Benchmark (PAB) exclusions
• Invest meaningfully in sustainable investments defined in Article 2(17) SFDR, reflecting the
  expectation investors may have based on the fund’s name.

ESMA also proposed several amendments to the text proposed in the consultation paper.

A new category for transition-related terms
For “transition”-related terms, ESMA suggests introducing a new category for which in addition
to the 80% threshold, Climate Transition Benchmark (CTB) exclusions should be applied.

Impact and transition terms: measurability
Funds using “transition” or “impact”-related terms in their names should also ensure that
investments under the minimum proportion of investments are made with the intention to
generate positive, measurable social or environmental impact alongside a financial return or
are on a clear and measurable path to social or environmental transition.

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