ESMA Provides Guidelines for Funds’ Use of ESG Related Terms

Published 17 June 2022

PrintCategory: Impact and ESG

On 31 May 2022, the European Securities and Markets Authority (ESMA) published a supervisory briefing which provides guidance on sustainability risks and disclosures in investment management.

The supervisory briefing touches upon areas such as fund documentation and marketing, and it puts forward a principles-based guidance on fund names.

ESMA underlines the importance in avoiding misleading fund names. The use of ESG-related terms such “sustainable”, “ESG”, “green”, “ethical”, “social”, “impact” etc. should reflect the fund’s actual investment objectives as well as its strategy and policy.

More specifically, ESMA recommends that only funds disclosing under SFDR Art. 9, funds disclosing under SFDR Art. 8 which in part invest in economic activities that contribute to environmental or social objectives and lastly funds disclosing under TR Art. 5 make use of “sustainable” and “sustainability” in its name. Further, impact-related terms should be reserved to funds whose investments are made with the purpose of generating positive, measurable social and environmental impact. As a basis for comparison, ESMA has given non-exhaustive examples of fund names using ESG-related terms which they consider acceptable respectively non-acceptable.

In relation to a fund’s sustainable investment policy, objectives and strategy, ESMA underlines that any sustainable objectives and characteristics always should be identified and be specific. Further, policies and strategies must correspond to claims made by the fund in its documentation and marketing material, and the management of the fund should be based hereon.

The supervisory briefing is non-binding but is published based on a wish to promote common supervisory practices and approaches and thereby securing supervisory convergence and increasing transparency for investors. Thus, we expect the Danish FSA to take ESMA’s guidelines closely into consideration when assessing funds’ use of ESG-related terms.

The European Securities and Markets Authority (ESMA) is an independent EU authority working towards enhanced investor protection and stable, orderly financial markets. ESMA promotes supervisory convergence amongst its member states’ national competent authorities (NCAs) and works together with other financial European supervisory authorities towards securing this.

Go read the full supervisory briefing here.

Tags:  Disclosure RequirementsESMASustainability


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