Fifty Spanish sustainable investment funds – plus their different classes – include in their commercial names terms like Sustainable, Green, Energy Transition, Responsible, or acronyms such as ESG and ISR (from environmental, social and governanceand of socially responsible investment). The European Securities and Markets Authority (ESMA) intends to prevent these words from being used for pure marketing purposes, which is why months ago it published its guidelines on the use of these expressions in fund names. And this Tuesday, The CNMV (National Securities Market Commission) has confirmed that it already follows these instructions. Some guidelines that will apply from November 21, 2024: any fund created after this date must apply them immediately. The existing funds will have six more months, until May 21, 2025, as reported by the Spanish regulator in a statement.
This announcement from the CNMV is no surprise, since it follows the planned schedule. On August 30, ESMA published the official translations of the guidelinesaccording to FinReg360, and national regulators had until last week to confirm whether they applied them or not. ESMA had also already provided the implementation dates (November of this year and May of next year).
According to Inverco data corresponding to the third quarter of 2024, the percentage of assets in Spanish funds that are already sustainable around 36% (compared to 34.7% at the end of the second quarter). Specifically, as of September 2024, The assets of sustainable funds reached 138,838 million euros (7% more than at the end of June). The vast majority of sustainable Spanish funds are the so-called articles 8: vehicles that integrate ESG features but are not the purest or most demanding (and are so called because they are defined in article 8 of the EU Sustainable Finance Disclosure Regulation). They represent 35% of the assets in Spanish funds. And it is precisely on them that ESMA puts the magnifying glass on with these regulations, to prevent this great drawer products that are only sustainable in name are sneaked in.
“The aim of these guidelines is to specify the circumstances in which fund names that use terms related to ESG or sustainability are unfair, unclear or misleading“, they pointed out from the CNMV in their statement this Tuesday. “To this end, common standards are established for fund managers” when they use “a term related to transition, impact, ESG or sustainability, thus increasing harmonization at European level and investor protection.” These guidelines refer to “to the obligation of managers to act with honesty and loyalty in the exercise of their activity, as well as the obligation that all information included in commercial communications be impartial, clear and not misleading,” is added in the same note.
Morningstar finds some 380 Spanish funds classified as article 8, of which approximately 14% -55 vehicles- include sensitive terms such as those mentioned above. The most common are the acronym ESG and the word Sustainablealthough there are also a good handful of products with the last name ISR. In its guidelines, published in mid-May, ESMA established that all funds incorporated in its name the acronym ESG (or its Spanish version, ASG) “must reach a minimum threshold of 80% of investments that promote environmental or social characteristics, or that have a specific sustainable investment objective.” That percentage increased, which it had previously placed at 50%.
The European regulator also tightened the nuts to vehicles that wish to incorporate in their names the words Impact, Environment and Sustainability. These, in addition to leaving out companies linked to weapons, tobacco and violation of human rights, will have to comply with other additional environmental exclusions, related to fossil fuels.
The CNMV adds in its note this Tuesday that there are still concepts to be clarified at the European level, which urgently need to be clarified: “The practical application of these guidelines will require the specification or clarification at the European level of some issues, in particular, when it will be considered an investment. significant and the application of exclusion criteria to green bonds (regardless of the classification of the issuer’s economic activity). Both issues, of particular relevance, are being addressed by ESMA and the CNMV is actively participating in the debate with the aim of them being clarified as soon as possible,” it is detailed.
The guidelines for investment fund names are very much in line with the Green Claims Directive (Green Claims Directive), relating to the green claims or slogans that companies can make about their products or services. The objective, in both cases, is that a product cannot be called sustainable without having a justification behind it. No more calling yourself green or eco: what changes with the anti-‘greenwashing’ laws.
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