ESMA’s guidelines for fund names are now in force. Is your fund truly compliant? Or is it risking regulatory attention?
On 14 May 2024, the European Securities and Markets Authority (ESMA) released its final report on the guidelines on funds’ names using ESG or sustainability-related terms (the “guidelines”), which also include a minimum investment threshold and qualifying criteria for different categories of ESG- and sustainability-related terms. Clear purpose of these guidelines is to ensure that fund names using ESG- or sustainability-related terms are fair, clear and straightforward for market participants.
The guidelines have applied since 21 November 2024. Funds in existence before 21 November 2024 had a timeline until 21 May 2025 to either comply with the guidelines or change their name accordingly. Funds formed on or after 21 November 2024 are expected to comply with the guidelines immediately.
Are you compliant yet?
Recent market studies show that in various EU jurisdictions numerous market players have adapted to the aforementioned requirements and amended the names of their respective financial vehicles to become compliant. It is ESMA’s ongoing expectation that fund managers make “every effort” to comply with the guidelines. In addition, national competent supervisory authorities are expected to ensure, through their supervision, that firms comply with the guidelines. In essence fund managers should consider whether all funds under their respective management are within the scope of the guidelines and, if so, whether these funds meet the criteria set out in the guidelines.
Different approaches by EU jurisdictions
On 21 October 2024, the Luxembourg financial supervisory authority, the CSSF published Circular 24/863 on the application of the ESMA guidelines. To facilitate the update of pre-contractual documentation, the CSSF launched a priority processing procedure (“PPP”) for existing Ucits and AIFs that limit the update of their issuing document/prospectus to amendments required in the context of the entry into force of the guidelines.
The CSSF emphasized in any case that the list of ESG and sustainability-related terms in the guidelines is not exhaustive, meaning that financial market participants must individually assess whether the guidelines apply to all financial products they manage. In all cases full transparency is demanded by the CSSF on the rationale behind ESG-related fund names, aiming to eliminate the reliance on broad sustainability claims without substantive evidence.
In enforcing such requirements, more stringent and lighter approaches can be observed in the different EU member states. The CSSF seems to be following a lighter approach and denoted that every case would be assessed on an individual basis and is always to be considered in light of the relevant circumstances. Also on an individual basis further investigations and entering into a supervisory dialogue with market participants, where necessary, may be considered. This is obviously just an indication as to the potential reaction as more stringent measures could potentially be applied as well.
The Dutch authority for the financial markets, the AFM, placed on 31 October 2024 already an announcement of the guidelines on its website, stating they would come into effect and later on, published the Q&A from ESMA (13 December 2025) on its website.
In the 31 October 2024 publication, the AFM announced that it expects fund managers to carefully consider and apply the guidelines and that the AFM will actively exercise supervision om compliance with the guidelines. The AFM attracted much earlier (on 6 February 2024, prior to the publication of the guidelines) attention for funds names in a publication on its website, stating that less than half of private investors take sustainability into account when making investment decisions but that from the group that did care for sustainability, the majority mainly looked at the name of the product. The AFM said that earlier research showed that the product or fund name would in general not be a reliable source to assume sustainability.
In closing
In any case, the guidelines come into effect and fund managers must comply therewith to avoid discussion with their regulator. If the current fund name does not adequately cover the sustainability of the fund investments, two things can be done: either changing the fund name to reflect how sustainable the investments of the fund actually are (a less “green” fund name) or keeping the “green” fund name and adjust the investments.
On the one hand, a change of the fund name will be an administrative burden and may be costly in terms of changing all fund documentation, publications and marketing material. On the other hand, fund managers may consider it to be a welcome occasion to make themselves visible in the market and boost their reputation by using a new fund name.
Jan Saalfrank is a funds partner at Pinsent Masons Luxembourg. Lous Vervuurt is a lawyer at Pinsent Masons, advising clients on financial regulation and anti-money laundering compliance. The law firm is part of Investment Officer’s expert panel.