What’s in the (green) name?

Previously, we concluded that one cannot just make any sort of sustainability claim. By means of policies and regulations, regulators try to incentivize financial market parties to move towards a playing field in which greenwashing and misrepresentation of the financial product occur as little as possible. However, practice has proven itself to be very unruly and greenwashing risks to be contained in the smallest things, such as the names used by investment fund managers for their products. But when is a name permissibly ‘green’ without becoming toxic?

In this context, ESMA has developed guidelines on investment funds’ names that use ESG or sustainability-related terminology. These guidelines were submitted to the market for consultation in November 2022. [1] On 14 May 2024, the final report and guidlines [2]  were published. Following feedback on the consultation, ESMA made a number of changes to the initial version of its guidelines, which are of importance to the market. An an example, the requirement to allocate at least 50% (as part of the proposed – and in the final version of the guidelines maintained – threshold of at least 80% of the investments of the financial product) to sustainable investments was dropped, but in its place a ‘commitment to invest meaningfully in sustainable investments’ was introduced. We recommend that market players read through the final report and final guidelines and assess and where relevant, adhere to these in the early stages of fund structuring!

The final guidelines are now being translated into the official languages of the European Member States and will be published on ESMA’s website.

Any questions? Feel free to get in touch.

[1] https://www.esma.europa.eu/press-news/consultations/consultation-guidelines-funds%E2%80%99-names-using-esg-or-sustainability-related.

[2] https://www.esma.europa.eu/sites/default/files/2024-05/ESMA34-472-440_Final_Report_Guidelines_on_funds_names.pdf