ESMA published on 18 November 2022 a Consultation Paper on Guidelines on funds\u2019 names using ESG or sustainability-related terms (the \u201cESMA Guidelines\u201d) in order to prevent greenwashing risk. These may, potentially, have massive implications for private equity fund managers.<\/p>\n\n\n\n
Greenwashing Risk & Fund Names<\/strong><\/p>\n\n\n\n Investors are allocating an ever-increasing proportion of their portfolios towards ESG strategies and may reasonably expect funds with these names to invest in companies with policies, practices, or characteristics that are consistent with ESG standards. The proposed ESMA Guidelines seek to regulate funds\u2019 names to further help to prevent potential greenwashing risk in fund names. They are applicable to alternative investment fund managers and UCITS management companies and are relevant to all\u00a0fund documentation\u00a0and\u00a0marketing communications\u00a0addressed to (potential) investors of UCITS and AIFs. The ESMA Guidelines specify criteria in terms of quantitative thresholds to assess whether the name of a fund containing terms, acronyms or abbreviations suggesting that the fund focuses on investments that have, or investments whose issuers have, ESG or sustainability features, are fair, clear and not misleading.<\/p>\n\n\n\n In accordance with the ESMA Guidelines, ESG- and sustainability-related terminology in fund names are proposed to be used only if the following (proposed) minimum quantitative thresholds are being complied with:<\/p>\n\n\n\n For funds that use the word \u201cimpact\u201d or \u201cimpact investing\u201d or any other impact-related term investments under the above-mentioned minimum proportions must, additionally, be made with the \u201cintention to generate positive, measurable social or environmental impact alongside a financial return\u201d.<\/p>\n\n\n\n ESMA also recommends the introduction of \u201cminimum safeguards\u201d that contain \u201cexclusion criteria\u2019 for all funds that which have an ESG or sustainability-related term in their name.<\/p>\n\n\n\n Unhelpfully, the proposed ESMA Guidelines do not define any of \u201cESG\u201d funds\u2019 names terms. ESMA, however, tried to give some degree of certainty by providing examples of fund names, such as \u201cClimate Change Solutions Fund\u201d, and how they are to be assessed. However, the examples are \u201cvanilla examples\u201d and limited. They still leave a degree of uncertainty for managers when assessing what funds\u2019 names are caught and what (additional) requirements are applicable to the funds with those names.<\/p>\n\n\n\n If adopted in current form, the ESMA Guidelines could be a \u201cpotential minefield\u201d for private equity fund managers. Albeit the greenwashing objective behind its potential adoption is to be welcomed, its scope seems to leave open too much room for interpretation. For example, the mere use of five (non-exhaustive) examples to clarify the terms \u201cESG-\u201d, \u201cimpact-related\u201d and \u201csustainability\u201d in funds\u2019 names seems to be vague and imprecise, whereas it would have potential massive implications in the market in terms of compliance efforts. In the context of the current uncertainties relating to the SFDR, it is clear that the ESMA Guidelines form part of a dynamic EU ESG regulatory framework that continues to evolve.<\/p>\n","protected":false},"excerpt":{"rendered":" ESMA published on 18 November 2022 a Consultation Paper on Guidelines on funds\u2019 names using ESG or sustainability-related terms (the \u201cESMA Guidelines\u201d) in order to prevent greenwashing risk. These may, potentially, have massive implications for private equity fund managers. Greenwashing Risk & Fund Names Investors are allocating an ever-increasing proportion of their portfolios towards ESG […]<\/p>\n","protected":false},"author":139,"featured_media":1000010484,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[158],"tags":[],"class_list":{"0":"post-1000010483","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-engagements-pour-une-gouvernance-et-une-communication-responsables"},"yoast_head":"\nRules applying to Funds\u2019 Names using ESG or Sustainability-related Terms<\/strong><\/h4>\n\n\n\n
Outlook: A Potential Minefield for Private Equity Fund Managers ?<\/strong><\/h4>\n\n\n\n