Luxembourg – Fund Finance – ESG Or Sustainability-Related Terminology In Funds’ Names: New ESMA Guidelines
On the 14th of May, the European Securities and Markets Authority (the ESMA), published new guidelines on the use of ESG and sustainability-related terms in funds’ names (the Guidelines). The Guidelines…
Luxembourg
Finance and Banking
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On the 14th of May, the European Securities and
Markets Authority (the ESMA), published new
guidelines on the use of ESG and sustainability-related terms in
funds’ names (the Guidelines). TheGuidelines
– which apply to funds marketed in the EU under a passport -
are part of the ESMA’s broader attempt to tackle greenwashing
and to avoid the misleading of investors. In short, Guidelines
require funds with ESG and sustainability-related terms in
funds’ names to operate a specific investment policy. If a fund
manager cannot comply, it either needs to amend the name of the
fund or change the investment policy of the fund.
Guidelines
If a fund marketed under an EU passport (such as an AIF marketed
by a licensed AIFM or under the EuVECA/EuSEF/ELTIF label, or a
UCITS fund) includes ESG or sustainability related terms in its
name, it needs to operate an investment policy which complies with
certain requirements depending on the type of term used in the fund
name, as indicated below:
Next Steps
The Guidelines will become applicable 3 months after the
Guidelines are translated into all EU official languages and
published on ESMA’s website, which is currently still awaited.
Managers of any new funds created after such date, are required to
comply with the Guidelines immediately. Existing funds shall have a
transitional period of 6 months, which gives fund managers of
existing funds a total of at least 9 months’ to ensure
compliance with the requirements laid out in the Guidelines.
To ensure compliance with the Guidelines, fund managers need to
make the following assessment: (i) review whether the fund’s
name includes a “Transition“,
“Environmental“, “Social“,
“Governance“, “Impact” or
“Sustainability” – related term (or terms
derived therefrom); (ii) if it does, assess if the requirements of
the Guidelines are met; and (iii) if they are not met, take steps
to ensure compliance with the Guidelines (taking into consideration
that this likely requires changes to the fund documentation and the
SFDR disclosures). We are happy to assist with this assessment.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
