ESMA Issues Fund Naming Guidance to Combat Greenwashing

The guidelines establish harmonised criteria for the use of ESG and sustainability terms in fund names.

The European Securities and Markets Authority (ESMA) has published its final report on guidelines for fund names using ESG- or sustainability-related terms.

ESMA’s goal with the guidelines is to ensure investors are protected from “unsubstantiated” or “exaggerated” sustainability claims, and to give asset managers clear and measurable criteria to assess their ability to use ESG- or sustainability-related terms in their funds’ names.

To do so, they will need to meet a minimum threshold of 80% of investments with environmental, social or sustainable objectives – similarly to the US Securities and Exchange Commission’s (SEC) Names Rule.

“Competitive market pressures create incentives for asset managers to include terminology in their funds’ names designed to attract investor assets,” ESMA said in a statement.

“This increasing demand has led to concerns. Misleading sustainability disclosures may give rise to risk of ‘greenwashing’.”

The report will now be translated into other EU languages and published on the ESMA website, with the guidelines due to come into effect three months later.

Read more articles like this on Regulation Asia’s sister publication, ESG Investor.

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