What are the estimated costs of complying with the guidelines, and what are the next steps
How much will it cost?
ESMA has received from some funds an estimate of the cost related to complying with the new guidelines. These costs would include prospectus updates, staffing, post-contractual information, internal coordination, training for financial advisors, among others.
Some funds mentioned a one-off cost of EUR 20k, while others mentioned as much as EUR 100k. Assuming the median between these two values, we get to a total of EUR 60k per fund.
As such, and assuming that at least 305 Article 6, 8 and 9 funds need to make changes, we estimate an aggregate cost of at least EUR 18.3 million.
Next steps for the new ESMA guidelines
Translation and Adoption
The guidelines will be translated into the official EU languages and adopted by each member country accordingly.
Implementation Timeline
Existing funds will have nine months to comply after the publication of the translations, while newly created funds must comply immediately.
Challenges to Adoption
Stakeholders, including the International Capital Market Association (ICMA) and various funds, have raised concerns that setting numerical thresholds may be premature.
There are calls for clearer definitions of sustainable investments and for less stringent minimum safeguards.
Potential Future Clarifications
It remains to be seen if ESMA will address these concerns and provide more clarity on the guidelines.
Next steps
The new guidelines will be translated to the official EU languages soon, and adopted by each country, accordingly. Following the publication of the translations, existing funds are expected to adopt the guidelines in nine months, while new funds created after the date of application of the guidelines should apply the guidelines immediately.
At the same time, the pathway to adoption might not be so smooth. Critiques have already been made to the final report, as stakeholders (e.g. ICMA, funds) agree that it might be premature to set numerical thresholds, as the definition of sustainable investments needs to be better defined. They also believe that the minimum safeguards should be less stringent than the ones adopted. As such, it is yet to be seen whether ESMA will release more clarity on these topics going forward.
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
