Skip to main content Skip to footer

Client Briefing: ESMA CP on Potential Guidelines on funds’ names using ESG or sustainability-related terms

ESMA Consult on fund names to reduce greenwashing risk

There is a continued investor demand for greater ESG integration in investment funds, paired with regulatory change to battle potential greenwashing – most recently we saw the FCA Consultation for sustainability labels and disclosures.

On 18th November, ESMA published a new consultation relating to guidelines, and thresholds, for the naming of funds and sustainability-related terminology.


Key Points:

  • The proposed Guidelines, which complement the principle-based guidance on funds’ names in the supervisory briefing released in May 2022, address funds’ names by proposing quantitative threshold criteria for the use of ESG- and sustainability- related terminology.
  • ESMA are considering products names and the terminology used being based upon a pre-determined minimum percentage of investments in sustainability-related investments, with these being distinguished through different thresholds – see table 1 below.
  • ESMA have stated that ESG and sustainability-related terms in fund’s names should be supported in a material way by evidence, and with this consultation continue to prioritise transparency whilst tackling greenwashing.
  • The guidelines will apply to UCITS management companies, including any UCITS which has not designated a UCITS management company, Alternative Investment Fund Managers, EuVECA, EuSEF and ELTIF managers.

The consultation is open until the 20th of February 2023.


Table 1: Sustainable Terminology and thresholds



ESG-related terminology in the fund name

Minimum 80% of investments should be used to meet the environmental or social characteristics or sustainable investment objectives in accordance with the binding elements of the investment strategy.

“Sustainable” and derived terms from this

Minimum 80% with a minimum threshold of 50% of this coming from “sustainable investments” as defined by Article 2(17) of SFDR.


Devlin Mambo View:

The global regulatory agenda, specifically aligned to reducing the potential of greenwashing, is certainly moving at pace. In the EU, disclosures and product categories were originally the proposed manner to help reduce the risk however the threshold approach for naming convention moves the dial.

We expect threshold requirements will impact several existing products, that currently do not meet the minimums, in addition to those products, and firms, that are unable to get the appropriate level of asset level ESG data to ensure alignment to Article 2(17) of SFDR (Note: Article 2(17) of SFDR provides the definition of a “sustainable investment”). We have highlighted a step-by-step approach that firms can consider below. Initial scans from Morningstar, highlighted in FT Ignites Europe, suggest that only 18% of article 8 products with “sustainable” in their name would meet the new requirements.

We strongly expect impacted firms to review the consultation paper, consider the impact to their product range and liaise with trade bodies/ respond, where appropriate. The consultation closes on 20th February 2023, with a potential effective date for final Guidelines by Q2/Q3 of 2023.


Step-by-step – what you should consider:

  1. Scoping: Initial review of the naming convention of your products and identify which may be in scope of the proposals in the Consultation Paper – see table 2 for the examples provided by ESMA with rationale
  2. Gap analysis: For those products in scope
    • Analyse the minimum % of planned asset allocation aligned with Environmental or Social characteristics
    • Analyse the minimum % of investments regarded as “sustainable investment” under Article 2(17) of SFDR
    • Review your marketing documentation
    • Document gaps, rationale, and consider potential solutions
      • Name change; or, enhance strategies; or, change in calculation methodology or data sourcing?
  3. Impact assessment: document the products that do not meet the requirements and consider next steps
  4. Governance: engage the relevant decision-making committees and Boards that have accountability for the investment process, risk, and management of the product.


Examples of fund name and description assessments (provided by ESMA)

Fund Name

Fund Description


Climate Change Solutions Fund

The “Climate Change Solutions Fund” has as objective to achieve a return through investing in companies with exposure to the theme of climate change solutions. Companies are selected in relation to key sub-themes of climate change solutions, which may change from time to time, such as sustainable transport, sustainable construction, sustainable food & water, renewable energy and recycling and re-use. Companies developing solutions within the sub-themes, such as companies developing clean energy from wind, solar or hydro are expected to have positive impacts from a climate change mitigation perspective. The product commits to 90% minimum to attain the promoted characteristics and 25% minimum in sustainable investments, with the remaining portion consisting of cash and other ancillary liquid assets.




“Climate Change” = ESG-related word - in-scope

The Fund name is in line with proposed investments - compliant

Over 80% minimum E/S characteristics - compliant

Sustainable Water Equities Fund

The “Sustainable Water Equity Fund” is an actively managed fund that invests globally in companies offering products and services across the water value chain. The fund will take exposure to equities of companies all over the world which operate or benefit from developments across the water value chain, i.e. utilities, equipment and products for effective water sourcing, collection and distribution, materials for water infrastructure as well as technologies for water quality and analytics. The product commits to 80% minimum to attain the promoted characteristics and 60% minimum in sustainable investments, with the remaining portion consisting of cash and other investments.



“Water + sustainable” = ESG related combination - in-scope

The minimum proportion of investments aligned to E is 80% - compliant

At least 60% assets in sustainable investments - compliant

Biodiversity Equity Fund

The “biodiversity Equity Fund” has as objective to support the sustainable use of natural resources and ecosystem services, as well as technologies, products and services that help to reduce Biodiversity threats or restore natural habitats. The product commits to 50% minimum to attain the promoted characteristics with the remaining portion consisting of cash and investments not aligned with environmental or social characteristics.



“Biodiversity” = ESG related word - in-scope

Minimum % of E/S characteristics less than 80% - not compliant

Sustainable Society Fund

The fund's investment objective is to capitalise on the growth of disruptive and innovating sectors and companies that will shape our future society through the construction of a global equity portfolio centred on seven themes: Security, O2 and Ecology, Cloud & Digital, Industrial 5.0, Elder & Wellbeing, Tech Med, Young Generation. The fund promotes certain environmental and/or social characteristics and commits 80% minimum to attaining the promoted characteristics and 20% minimum in sustainable investments with the remaining portion consisting of cash and other investments.


“Sustainable + society” = ESG-related combination - in-scope

The minimum proportion of investments aligned with E/S is 80% - compliant

Sustainable investments commitment below the 50% threshold - not compliant

Global Impact Fund

The Fund aims to achieve a total return through a combination of capital growth and income on the Fund’s assets. The Fund invests at least 80% of its total assets in equity securities and equity-related securities of companies globally whose goods and services address the world’s great social and environmental problems, alongside financial returns. The Fund will aim to diversify its investments across companies that have an impact on people and the planet across themes including, but not limited to, affordable housing, education and skilling, financial and digital inclusion, public health, safety and security, green energy, pollution remediation and prevention, water, and waste. The product commits to 80% minimum to attain the promoted characteristics alongside financial returns, with the remaining portion consisting of cash and other investments.



“impact” = expectation of minimum proportion to generate positive ESG impact and financial - in-scope

The minimum proportion of investments aligned with E/S is over 80% - compliant

For further information about how Devlin Mambo can help you ensure your products remain compliant in relation to ESG, please reach out to a member of the team.

About the author

Graeme Devlin

Graeme is a co-founder of Devlin Mambo and leads our Product & Distribution and Compliance & Governance practices.

Delivering a 360° service to the asset management industry

Devlin Mambo

We may use cookies to collect data and improve the performance of this website. For further information, please see our Privacy Policy.