EU: ESMA provide further clarification on how to apply its fund names guidelines

On 13 December 2024, ESMA published three new Q&As on the practical application of its guidelines on funds' names using ESG or sustainability-related terms. 

The new Q&As are related to the key topics of green bonds, the interpretation of “meaningfully investing in sustainable investments” and the definition of controversial weapons. 

Further details with links to the Q&As are provided below.

• The Q&A on green bonds:
   
  • exempts EU Green Bond Regulation compliant bonds from needing to be assessed against the Paris-aligned Benchmarks (PAB) /Climate Transition Benchmark (CTB) exclusions; and
     
  • in respect of other use of proceeds bonds/instruments, states that fund managers should use a look-through approach to assess whether the activities financed by the bond/instrument fall foul of the PAB/CTB exclusions, unless the company issuing the green bond has been found by benchmark administrators to be in violation of the UNGC principles or OECD Guidelines for Multinational Enterprises. 
     
• The Q&A on “meaningfully investing in sustainable investments” is described in the press release as presenting a “common understanding among national competent authorities that funds may not be “meaningfully investing in sustainable investments” if they contain less than 50% of sustainable investments”.  ESMA therefore seems to be pushing EU national competent authorities to adopt a 50% minimum SI threshold. Whilst the Q&A text states that NCAs “should carry out a case-by-case analysis of how any sustainability-related term is used in the name of a fund" with respect to the SI% (which may provide some flexibility in practice), the overall message seems to be to push for a 50% minimum SI threshold.   
   
• The Q&A on controversial weapons specifies that controversial weapons for the purpose of the PAB/CTB exclusions, should be interpreted by reference to the list provided in SFDR principal adverse impact indicator 14, namely “anti-personnel mines, cluster munitions, chemical weapons and biological weapons”. 

ESMA’s press release is available here.

See our earlier blog post on ESMA's fund naming guidelines here.