The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, has released a new set of Questions and Answers (Q&As) to clarify the practical application of its Guidelines on funds’ names using ESG or sustainability-related terms.
The Q&As aim to promote consistency and a shared understanding among market participants and regulators on critical aspects of sustainable investments. Key topics addressed include green bonds, the threshold for “meaningful investment” in sustainable assets, and the definition of controversial weapons.
Key Clarifications:
- Green Bonds
- ESMA confirmed that investment restrictions tied to the exclusion of certain companies do not apply to European Green Bonds.
- For other green bonds, fund managers may adopt a “look-through” approach to evaluate if financed activities align with exclusion criteria.
- “Meaningfully Investing in Sustainable Investments”
- A common standard is set: funds must allocate at least 50% of their portfolios to sustainable investments to claim they are meaningfully investing in such assets.
- Controversial Weapons
- The Q&A specifies that the exclusion of controversial weapons should align with Principal Adverse Impact Indicator 14 under the Sustainable Finance Disclosure Regulation (SFDR).
Background and Rationale
The Q&A publication comes in light of the European Green Bonds Regulation, set to take effect soon. ESMA highlighted that sector-specific regulations, such as those under the AIFMD and UCITS Directive, take precedence, necessitating clear guidance for fund managers.
These efforts are part of ESMA’s ongoing commitment to fostering transparency and ensuring the smooth application of sustainability guidelines across the EU’s financial markets.
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