The European Fund and Asset Management Association (EFAMA) has expressed concern around the European Securities and Markets Authority’s (ESMA’s) proposed approach to the use of ESG and sustainability-related terms when naming funds.
ESMA’s recent consultation on guidelines around naming funds suggested a numerical threshold approach, which EFAMA warns will not address the greenwashing issues that the financial industry is trying to tackle. A lack of clarity around the definitions of key sustainable finance concepts will allow such irresponsible practices to continue, it warns.
EFAMA advises ESMA to work with the European Commision to clarify the definition of a “sustainable investment” and ensure interoperability with SFDR, MiFID and other regulatory and directory demands before putting their proposed guidelines into action.
Anyve Arakelijan, regulatory policy advisor at EFAMA, comments: “It is unlikely that a methodology built on an unclear legal definition will increase investor understanding of ESG funds and adequately address greenwashing concerns.
“Rather than imposing a threshold, it would be more proportionate to mirror ESMA’s supervisory guidance on sustainability risks and disclosures by ensuring that use of ESG-related terms is supported in a material way with sufficient evidence of sustainability characteristics in the fund’s investment objectives and strategy.”
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