ESMA publishes Q&As on the application of the Guidelines on funds’ names

Context

On 13 December 2024, the European Securities and Markets Authority (ESMA) published three Q&As that provide further detail on specific aspects of how to apply the ESMA Guidelines on funds’ names using ESG or sustainability-related terms (Guidelines) in practice. The aim of publishing these Q&As is to ensure a common understanding of the key ideas, thus also ensuring that the Guidelines are applied smoothly and consistently. These clarifications apply to both UCITS and AIFs.

Key points

The Q&As outline the intended interpretations of the treatment of green bonds, in addition to the concept of “meaningfully investing in sustainable investments” and the definition of “controversial weapons”.

Application of exclusions for green bonds

• Investments in instruments issued under the European Green Bonds Regulation (Regulation (EU) 2023/2631) are exempt from being screened against the PAB and CTB exclusions.

• For investments in other types of use-of-proceeds instruments, financial market players must apply the PAB and CTB exclusions to the economic activities financed on a look-through basis.

• In addition to the application of this look-through approach, market players should also ensure that issuers of such instruments are not in violation of the United Nations Global Compact (UNGC) principles or the Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises.

Investing meaningfully in sustainable investments

• NCAs should assess fund names using sustainability-related terms on a case-by-case basis.

• According to ESMA, funds investing less than 50% of the proportion of investments in sustainable investments may not be considered as “investing meaningfully in sustainable investments”.

• ESMA also indicated that it is possible that NCAs may not consider 50% to be sufficient. However, this will be“subject to the circumstances of the case”.

Defining controversial weapons

• ESMA specifies that when applying the exclusion relating to controversial weapons, market participants may refer to the list outlined in indicator 14 Table I Annex I of Commission Delegated Regulation (EU) 2022/1288, namely “anti-personnel mines, cluster munitions, chemical weapons and biological weapons”.

Make sure you are one step ahead and get in touch with your usual Arendt contact for help and advice on how to tackle the implications of these Guidelines.