The European Securities and Markets Authority (ESMA) released the final guidelines for using ESG and sustainability-related terms in investment fund names or descriptions to avoid exaggerating claims. The final report of the guidelines was released on 14 May 2024. 

This impacts all EU-based alternative investment funds, which will need to conduct thorough assessments of their investments over the next few months to determine whether they meet certain criteria thresholds.

Let’s discuss the new EU guidelines to address greenwashing in detail. 

What’s changed with the new EU anti-greenwashing guidelines for investment funds?

The final ESMA guidelines follow the regulator's initially-proposed guidance from November 2022, with some changes. 

In the initial proposal, ESMA introduced a 50% threshold for asset allocation for the use of sustainability-related terms and an 80% threshold for the use of ESG-related words on investments to support an ESG-related fund name. It also included exclusion criteria for fossil fuel companies and electricity producers with high GHG emissions. 

However, in the new guidelines, ESMA removed the 50% sustainability-related term threshold and retained an 80% minimum proportion of investments supporting the sustainability characteristics of funds using the term “sustainable.”

ESMA also introduced a new category for transition-related terms such as “improving,” “progress,” and “evolution,” which should meet the 80% asset allocation threshold. Further, the official applied exclusion from the EU’s rule for Climate Transition Benchmarks to enable investment in companies deriving part of their revenue from fossil fuels. 

Compliance with the new EU anti-greenwashing guidelines for investment funds

To comply with the new EU guidelines, alternative investment funds (AIF) managers need to conduct thorough assessments of their investments. Within two months of data publication of guidelines on the ESMA website in all languages, the funds must notify ESMA whether they comply, intend to comply, or do not want to comply with the new guidelines. In case of noncompliance, firms will need to provide reasons for non-compliance. 

The new EU guidelines for investment funds will apply three months after the data is published in all EU languages. 

Read the final report here. 

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