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- Green Bonds: European Green Bonds are exempt from company exclusion rules; other green bonds require activity-based assessments.
- Sustainable Investments: Funds must allocate at least 50% to sustainable investments to claim “meaningful” ESG alignment.
- Controversial Weapons: Exclusions align with SFDR’s adverse impact indicator 14 for consistency.
The European Securities and Markets Authority (ESMA) has published a Q&A to provide clarity on the Guidelines for funds’ names using ESG or sustainability-related terms. This guidance ensures a consistent understanding and application of the rules for fund managers, national authorities, and investors.
Why it matters:
ESMA’s Q&A addresses key points of confusion, particularly around green bonds, sustainable investment thresholds, and controversial weapon exclusions. These clarifications are critical as the European Green Bonds Regulation comes into force, influencing compliance across the sector.
Key details from ESMA’s Q&A:
- Green Bonds:
- European Green Bonds: Exempt from exclusion rules for companies.
- Other green bonds: Require a “look-through” approach to ensure financed activities comply with exclusions.
- Sustainable Investments:
Funds must allocate at least 50% of assets to sustainable investments to qualify as “meaningfully investing” in ESG. - Controversial Weapons Exclusion:
Exclusions should reference SFDR principal adverse impact indicator 14, ensuring consistency across fund practices.
Related Article: ESMA Pushes for Digitalized Sustainability and Financial Disclosures by 2025
What they’re saying:
ESMA emphasized the urgency of clarifying these points due to the European Green Bonds Regulation’s imminent application, which takes precedence under AIFMD and UCITS directives.
By standardizing key ESG terms and expectations, ESMA is helping fund managers navigate the complex regulatory environment while maintaining credibility with investors.
The bigger picture:
These guidelines strengthen trust and transparency in ESG-labeled funds, ensuring alignment with the EU’s sustainability goals. As ESG investing grows, consistent regulation will remain essential for market integrity and investor confidence.
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