What are the guidelines for funds’ names
What are the new ESMA guidelines for fund names?
The requirements for funds’ names vary depending on whether they include either ESG-related terms, transition- related terms, or impact-related terms.
Funds that have ESG-related terms in their name, (such as ESG, green-, environmental, etc), should use at least 80% of their investments to either meet environmental or social characteristics or sustainable investment objectives in accordance with their investment strategy. Moreover, they should meet minimum safeguards by excluding investments according to the Paris-aligned Benchmarks (PAB).
The PAB exclusions include:
- companies involved in any activities related to controversial weapons;
- companies involved in the cultivation and production of tobacco;
- companies that benchmark administrators find in violation of the United Nations Global Compact (UNGC) principles or the OECD Guidelines for Multinational Enterprises;
- companies that derive 1% or more of their revenues from exploration, mining, extraction, distribution or refining of hard coal and lignite;
- companies that derive 10% or more of their revenues from the exploration, extraction, distribution or refining of oil fuels;
- companies that derive 50% or more of their revenues from the exploration, extraction, manufacturing or distribution of gaseous fuels; and
- companies that derive 50% or more of their revenues from electricity generation with a GHG intensity of more than 100g CO2 e/kWh.
Transition funds use Climate Transition Benchmark (CTB)
However, the PAB exclusions would unnecessarily penalise some funds that focus on transition strategies. As such, ESMA allowed for funds that use transition-, social-, or governance- related terms in their names, to follow the exclusion criteria of the Climate Transition Benchmark (CTB).
The CTB exclusions include:
- companies involved in any activities related to controversial weapons;
- companies involve in the cultivation and production of tobacco, and;
- companies that benchmark administrators find in violation of the United Nations Global Compact (UNGC) principles or the Organization for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises.
Where “environmental” terms are used in combination with “transition” terms in the name of a fund, the CTB exclusions should apply.
Impact-related funds must meet quantitative & minimum
Finally, funds that use impact-related terms in their name, have not only to meet the quantitative thresholds and the minimum safeguards, but also to guarantee that their investments are made with the intention to generate positive, measurable social or environmental impact alongside a financial return.
Final report
View the Final Report Guidelines on funds’ names using ESG or sustainability-related terms
ESMA Reveals Report
Full report: Part 1 Part 2 Part 3 Part 4
Source: ABN-AMRO, July 17, 2024
