What's in a fund name? ESMA guidelines on ESG or sustainability terms

As the demand for investment funds with an environmental, social and governance (ESG) or sustainable focus continues to increase, regulators have sharpened their focus on developing rules regarding the naming of such funds, in an effort to counter greenwashing and mitigate the risk of investors being misled. Charlotte Hill and Daniel Hirschfield review the position in the EU, as found in ESMA's finalised guidelines on the use of ESG or sustainability-related terms in funds' names.

Charlotte Hillis a partner and head of the Financial Services Regulatory group at Taylor Wessing in London, whereDaniel Hirschfieldis senior counsel - Knowledge. Contact them onc.hill@taylorwessing.com andd.hirschfield@taylorwessing.com.

How did we get here?

At the end of May 2022, ESMA (the European Securities and Markets Authority) published a supervisory briefing on sustainability risks and disclosures in investment management. [1] The briefing included some principles-based guidance on the naming of funds and what national competent authorities should take into account when assessing fund names. It soon became clear that the sector required more specific guidelines. Accordingly, in November 2022, ESMA developed its initial work by launching a consultation on proposed guidelines on funds' names. [2] ESMA received 125 responses to its consultation paper as well as advice from the Securities and Markets Stakeholder Group (SMSG). [3]