Use of certain fund names

ESMA’s supervisory briefing on best practices for disclosures under the SFDR contains guidance on the use of certain words in fund names when drafting disclosures under Article 8 or Article 9 of the SFDR. It indicates that only Article 8+ funds (i.e., those funds that commit to making at least one “sustainable investment” as defined in Article 2(17) SFDR) and Article 9 funds may use the word “sustainable” in their name. The terms “impact”, “impact investing” or any other impact-related wording are intended to be used only by products whose investments are made with the intention to generate a positive, measurable social and environmental impact alongside a financial return.

Subsequently, ESMA published a Consultation Paper on Guidelines on funds’ names using ESG or sustainability-related terms, which proposes quantitative thresholds for the use of ESG and sustainability-related terminology in funds’ names, for funds marketed to both professional and retail investors. Specifically, ESMA proposes that:

• if a fund has the word “sustainable” or any other term derived from it in its name, it should allocate within the 80% of “ESG” investments at least 50% of the minimum proportion of sustainable investments as defined under the SFDR; and

• if a fund has any ESG-related words in its name, a minimum proportion of at least 80% of its investments should be used to meet the environmental or social characteristics or sustainable investment objectives in accordance with the binding elements of the investment strategy, as disclosed under the SFDR RTS.

Some national competent authorities have made similar proposals, generally limited to retail distribution.