Debates as to how funds names shall be aligned with sustainability commitments disclosed under SFDR rules has been raging since the early days of SFDR implementation, fund names having a great influence on investor decisions/choices.
In the absence of harmonised guidance as to the use of sustainability-related terms in funds names, various regulatory practices had emerged in Europe leading to ESMA publishing some high-level guidance on funds name in May 2022, followed by a consultation in November 2022.
Recognising that discrepancies between fund names and committed sustainability strategy could confuse investors, ESMA has finally issued its guidelines on funds names using ESG or sustainability-related terms.
These “terms” encompasses a broad range of words such as green, ESG, SRI, transition, improve, social, equality, sustainable, impact, governance, controversies…
Funds wishing to use these terms in their fund names must commit to a proportion of at least 80% of their investment meeting the Environmental Characteristics or Social Characteristics or Sustainable Investment Objectives in accordance with the binding criteria of their investment strategy as defined in the SFDR annex to their prospectus. This minimum percentage must be complied with at all times, but the concept of passive breach will apply. Read More here
