The ESMA has recently updated its question and answer section to provide additional details on the practical application of the Guidelines concerning the use of ESG or sustainability-related terms in investment fund names.
According to Zeidler, these Guidelines are primarily designed to safeguard investors against misleading claims regarding the sustainability attributes of investment funds.
To recap, the Guidelines stipulate the conditions under which ESG or sustainability-related terms can be incorporated into the names of investment funds. The intent is to ensure that such terms are not used to exaggerate or falsely represent the sustainable characteristics of these funds.
The newly released Q&As offer vital clarifications particularly beneficial for fund managers overseeing ESG-focused or sustainable funds, applicable to both UCITS and AIFs. Notably, the Q&As have finally defined what constitutes ‘meaningful’ investment in sustainable assets. According to Article 2(17) of the SFDR (Sustainability-related Disclosures in the Financial Services Sector Regulation), funds must allocate at least 50% of their portfolio to sustainable investments to be considered ‘meaningfully’ sustainable.
Additionally, ESMA has provided insights regarding investment in Green Bonds. For European Green Bonds, which are strictly regulated under the new European Green Bonds Regulation (EU 2023/2631), there are no restrictions based on ESG criteria. However, for other green bonds, fund managers should employ a ‘look-through’ approach to ensure that the financed activities align with the fund’s ESG exclusions, such as not financing fossil fuel projects.
In terms of exclusions, ESMA has clarified how the rules concerning controversial weapons—outlined in Commission Delegated Regulation (EU) 2020/1818—should be interpreted. This pertains specifically to anti-personnel mines, cluster munitions, chemical weapons, and biological weapons, ensuring uniformity across funds when excluding companies involved in these activities.
Keep up with all the latest FinTech news here.
Copyright © 2025 FinTech Global
