Today ESMA published the translations of the Guidelines on funds’ names using ESG or sustainability-related terms. However, since the English-language guidelines were published in March, the publication of the translations does not mean anything new in terms of content.
Funds that use sustainability-related terms in their name, must at least invest 80% of their assets in sustainable investments and follow the Paris-aligned benchmark exclusions. For funds that focus on ESG transition, the new „transition category” has been created. Those funds also shall follow the 80% rule, however, they only need to consider 3 exclusions of the Paris Agreement.
What is much more interesting is the schedule now set for implementing the fund name guidelines. With the official publication of the translations, the new regulation will come into force in 3 months on November 21, 2024. Within the next two months, the respective member states must comment on whether they will adopt the guidelines. The guidelines will apply to funds launched from November 21, 2024. Funds launched before this date have a grace period until May 21, 2025.
Source: ESMA Website
Although this transition period sounds very long, if you consider how much effort it takes to change a fund name, this transition period might be a bit too short. For example, fund prospectuses and all other fund documents must be changed, static data must be adjusted in various databases and administration systems for many parties involved (administrator, transfer agent, management company, etc.) and this new information must be transmitted to distributors and investors. Some of these processes require approval from the relevant supervisory authorities. For this reason, the fund name change process can take months until all changes are effective.
This is best accomplished with the support of fully automated processes like the ones we use at iQuant.
You can find more information about the Guidelines on funds’ names using ESG or sustainability-related terms under the following link:
https://www.esma.europa.eu/press-news/esma-news/esma-publishes-translations-its-guidelines-funds-names
Source: ESMA
