Unpacking ESMA's New Guidelines on Sustainable Investment Names

The European Securities and Markets Authority has issued guidelines on using ESG and sustainability-related terms in investment fund names to prevent misleading investors. These guidelines aim to enhance transparency and protect investors from potential greenwashing in the sustainable finance market. Key points include: Funds using ESG-related terms must meet an 80% threshold of investments aligned with environmental or social characteristics. Specific exclusions apply based on the terms used (e.g., environmental, social, governance). Funds using "sustainability" terms must also commit to meaningful sustainable investments. Additional requirements for funds using "transition" or "impact" terms. Index-tracking funds must also comply with these terms. Competent authorities are expected to monitor compliance and conduct supervisory dialogues with fund managers. The guidelines apply to new and existing funds immediately after a six-month transition period.