ESMA Fund Naming Guidelines
The ESMA (European Securities and Markets Authority) Guidelines on funds’ names using ESG or sustainability-related terms (hereinafter referred as “Guidelines”) provide a framework for the use of ESG (Environmental, Social, and Governance) or sustainability-related terms in the names of investment funds. The Guidelines apply to Alternative Investment Funds (AIF) or Undertaking for Collective Investment in Transferable Securities (UCITS) funds, whose name includes terms related to “transition”, “social”, “governance”, “environmental impact” or “sustainability” (e.g., “transitioning”, “evolution”, “green”, “equality”, “controversies”, “impactful”, “sustainably”, etc.).
The Guidelines aim to ensure that the fund name accurately reflects its ESG or sustainability-related strategy, preventing misleading or exaggerated claims. In order not to mislead investors, the ESG and sustainability-related terms in funds’ names should be supported in a material way by evidence of sustainability characteristics or objectives that are reflected fairly and consistently in the fund’s investment objectives and policy.
Therefore, fund managers have to assess whether the funds in their portfolio have names containing ESG or sustainability-related terms. It this is the case, the sustainability-related strategy of the fund has to follow these recommendations:
- Funds using transition-, social- and governance-related terms should:
- fulfill an 80% threshold linked to the proportion of investments used to meet environmental or social characteristic or sustainable investment objectives, in accordance with the binding elements of the investment strategy disclosed to investors pre-contractually under SFDR;
- apply the CTB (EU Climate Transition Benchmark)
- Funds using environmental- or impact-related terms should:
- fulfill an 80% threshold linked to the proportion of investments used to meet environmental or social characteristic or sustainable investment objectives in accordance with the binding elements of the investment strategy disclosed to investors pre-contractually under SFDR;
- apply the PAB (Paris-Aligned Benchmark) exclusions,
- Funds using sustainability-related terms should:
- fulfill an 80% threshold linked to the proportion of investments used to meet environmental or social characteristic or sustainable investment objectives in accordance with the binding elements of the investment strategy disclosed to investors pre-contractually under SFDR;
- apply the PAB (Paris-Aligned Benchmark) exclusions;
- commit to invest meaningfully in sustainable investments referred to in Article 2(17) of the SFDR. Funds using a combination of those sustainability-related terms should apply the requirements cumulatively.
Instead, funds not using any ESG or sustainability-related terms in their names are not required to meet the specific asset allocation thresholds or exclusionary criteria. However, they must still ensure that their marketing and disclosures are not misleading and accurately reflect the fund’s investment strategy and objectives.
Visit the Low Carbon Benchmark Regulation for more information.
Visit the SFDR Regulation for more information.
The ESMA considers that fund names are a powerful marketing tool. The objective of the Guidelines is to protect investors from unsubstantiated or exaggerated sustainability claims in fund names. The Guidelines provide asset managers with clear and measurable criteria to design the ESG or sustainability-related strategy of the fund, in alignment with the term(s) used in fund names. This ensures that the funds’ name accurately reflects its ESG or sustainability-related characteristics, tackling greenwashing risk stemming from the misleading use of ESG terminology and, therefore, promoting transparency and helping investors make informed decisions.
The Guidelines apply to UCITS management companies, including any UCITS which has not designated a UCITS management company, AIF Managers including internally managed AIFs, EuVECA, EuSEF and ELTIF and MMF [1] managers as well as competent authorities.
[1] AIF – Alternative Investment Fund
UCITS – Undertakings for Collective Investment in Transferable Securities
EuVECA – European Venture Capital Fund
EuSEF – European Social Entrepreneurship Fund
ELTIF – European Long-Term Investment Fund
MMF – Money Market Fund
Financial services firms in scope of the Guidelines must ensure that fund names accurately reflect the ESG characteristics of the funds, providing investors with clear and reliable information:
- M Managers of funds established before the application date of the Guidelines (21 November 2024) have a six-month period (i.e. before 21 May 2025) to implement these Guidelines. During this time, they must design the fund’s strategy and prepare the relevant documentation in accordance with the Guidelines.
- Managers of new funds, created after the application of the Guidelines, are required to apply them immediately in respect of those funds.
The SFDR introduces mandatory disclosures’ requirements for financial products which have a certain degree of sustainability-related commitments. With the introduction of Guidelines, funds that use sustainability-related terms in their names must ensure that their sustainability-related methodology is aligned with the Guidelines and that the methodology is accurately described and its results reported as per the SFDR disclosures’ requirements.
Visit the SFDR Regulation for more information.
The Commission de Surveillance du Secteur Financier (CSSF) published Circular CSSF 24/863, thereby implementing the Guidelines into the Luxembourg regulatory framework.
The CSSF expects market participants, regardless of whether they are disclosing under Article 6, 8 or 9 of the SFDR, to carry out a self-assessment of the applicability of the Guidelines to the products they manage and to ensure compliance of fund names with these Guidelines. The CSSF is granting a priority processing procedure to existing UCITS and AIFs that limit the update of their issuing document/prospectus to amendments required in the context of the entry into force of the Guidelines.
On 21 October 2024, the CSSF published the “Communication to the investment fund industry in relation to the ESMA Guidelines on funds’ names using ESG or sustainability-related terms”.
- 14 May 2024: ESMA published its final report on the Guidelines
- 21 August 2024: ESMA published the Guidelines in all official EU languages;
- 21 October 2024: Deadline for national competent authorities to notify ESMA about their compliance intentions;
- 21 November 2024: The Guidelines start to apply. New funds created on or after 21 November 2024 must comply with these Guidelines immediately;
- 21 May 2025: End of the transitional period for existing funds, which must be in full compliance by this date.
- 18 November 2022: ESMA launched consultation on the Guidelines;
- 14 May 2024: ESMA published its final report on the Guidelines;
- 21 August 2024: ESMA published the Guidelines in all official EU languages;
- 21 November 2024: The Guidelines start to apply. New funds created on or after 21 November 2024 must comply with these Guidelines immediately;
Currently, there is no consultation open or pending.
