Governance Briefing — ESMA guidelines on ESG and sustainability fund names

Executive briefing: The European Securities and Markets Authority (ESMA) published final Guidelines on funds’ names using ESG or sustainability-related terms on 14 May 2024. The guidelines apply three months after publication in all EU languages (13 November 2024). Managers must adopt governance controls to ensure fund names referencing ESG or sustainability align with portfolio composition, exclusion criteria, and engagement policies.

Key governance signals

Board oversight. Management bodies must approve policies governing fund naming, exclusions, and monitoring.
Portfolio alignment. Funds using “ESG” terms must allocate at least 80% of investments to promote environmental or social characteristics and apply exclusion criteria specified by ESMA.
Transition timelines. Existing funds have six months to comply, while new funds must comply immediately.

Action checklist

Inventory fund names, marketing materials, and disclosures to determine which funds trigger the guidelines.
Update governance policies, investment mandates, and compliance monitoring to enforce minimum investment and exclusion thresholds.
Coordinate with distribution and investor relations teams to communicate any renaming or strategy adjustments.

Enablement moves

Implement data monitoring tools that track portfolio alignment with ESG thresholds and exclusions.
Establish governance forums involving investment, compliance, and sustainability teams to review fund classifications.
Maintain audit trails documenting decisions, monitoring results, and investor communications.

Sources

Zeph Tech assists asset managers with ESMA fund name compliance by aligning governance policies, portfolio monitoring, and investor communications.