Germany’s financial regulator, BaFin, announced it has already started to apply changes to ESG fund-name rules put forward by the European Securities and Markets Authority (Esma).
Esma finalised its rules in May for fund providers who use sustainability-related words in fund names, such as green, environment or social, and were expected to be applied from the autumn. BaFin’s executive director for securities supervision and asset management, Thorsten Pötzsch, said they were already taking the guidelines into account when processing new applicants.
He said that Esma’s guidelines “will completely replace” the regulator’s current practice, which were introduced two years ago.
“The fund name is often the first piece of information that investors perceive,” he said. “It can therefore have a significant influence on whether and how they invest their money”.
Under the guidelines, funds that use such terms need to have a minimum of 80% of investments that meet environmental, social or sustainable investment objectives. The fund also must have certain minimum exclusions to prevent greenwashing and increase fund transparency.
Pötzsch said the regulator’s previous administrative practice was aimed at private investors but that Esma’s guidelines are aimed at all EU funds, including ones that only apply to professional investors. BaFin’s previous rules also covered funds that marketed themselves as sustainable, but under the new guidelines only the name will apply.
According to MSCI, roughly 32% of funds under article 8 and 9 of the EU’s sustainable finance disclosure regulation could be affected by Esma’s naming guidelines, with nearly 30% potentially needing to either divest or change their name.
Article 8 funds are investing products that promote environmental or social characteristics along with financial objects, while article 9 includes products with a sustainable investment objective.
Already, 30 funds – 29 article 8 and one article 9 – have removed ESG terms from their names and more are expected to change their names closer to the compliance deadline, investment consultants Morningstar reported.
Existing funds with sustainable terms in their name have until spring 2025 to comply, or six months after the translations of guidelines are published on the Esma website.
This page was last updated August 5, 2024
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Moriah Costa is the Editor-in-Chief of Green Central Banking and has over a decade of experience writing about banking and finance. She is an award-winning American journalist based in Paris and has written for major international publications, including Reuters, The Guardian, and S&P Global. Having grown up in water-stressed Arizona, she has always had a strong interest in bringing awareness to climate and environmental issues.
