ESMA Guidelines: The Future of Sustainable Finance in Europe

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In May 2024, the ESMA published a report providing guidelines on investment fund names. This document aims to prevent greenwashing, ensuring that funds labeled as "sustainable" adhere to precise and verifiable criteria. The key points of the report are: a strict definition of the terms "sustainable" and "green"; a requirement for consistency between the fund's name and its underlying investments; greater attention to funds claiming to consider biodiversity and climate change. The decision of the Autorité des Marchés Finances to apply the ESMA guidelines on investment fund names strengthens the need for regulatory uniformity in Europe. The AMF adopted the ESMA Guidelines on December 16 to encourage sustainable climate finance.

To clarify some specific aspects of the practical application of these guidelines, at the request of several national competent authorities, ESMA published a series of FAQs on December 13 containing further details regarding the treatment of green bonds. Specifically, it highlighted how funds that include terms related to the environment, impact, and sustainability can invest in European green bonds (EuGB) or other green bonds, provided they finance ecological activities. Additionally, it committed to "significantly investing in sustainable investments".

The guidelines state that the use of the term "impact," "impact investing," or any other impact-related term should be reserved for funds that meet quantitative thresholds and minimum safeguards. Additionally, investments made in accordance with the minimum proportions must be carried out with the intention of generating a positive and measurable social or environmental impact, alongside a financial return. Finally, the minimum safeguards, including exclusions for the Paris Aligned Benchmark (PAB), are defined in the Delegated Regulation on Benchmark Regulation (CDR (EU) 2020/1818). They are recommended for all investment funds using ESG or sustainability terms in their name.

ESMA has separated the terms related to social (S) and governance (G) from those related to environmental (E). The social and governance terms are included in the same group as the transition terms, allowing funds with such terms in their name to apply only the (Climate Transition Benchmark) CTB exclusions. Environmental terms should still be used only by funds that apply the PAB exclusions. The commonly used abbreviations "ESG" and "SRI" would continue to be considered environmental terms. ESMA specified that where environmental terms are used in combination with the "transition" terms in a fund's name, the CTB exclusions should apply.

Climate finance represents a central pillar in the fight against climate change. With initiatives like the European Green Deal and the adoption of SFDR regulations (Sustainable Finance Disclosure Regulation), investors are increasingly incentivized to direct capital towards sustainable projects. France confirms itself as one of the main promoters of sustainable finance at the European level. The Autorité des Marchés Financiers (AMF) was among the first authorities to implement ESMA's guidelines on the names of investment funds declared "sustainable" to ensure transparency and prevent greenwashing. Furthermore, France, from 2017 to today has issued 20 billion euros in green bonds maturing in 2039, identifying as priorities the energy efficiency of buildings, the strengthening of public transport, the development of technologies for the exploitation of renewable resources, and the promotion of sustainable land use.

This article was created as part of the "Biodiversity services EU expansion" project (CUP: E43D22000480009) under the call from the Lombardy Region "PR FESR 2021-2027 – LINEA INTERNAZIONALIZZAZIONE 21-27", aimed at supporting the internationalization of Italian companies. 3Bee is the naturetech company that develops innovative technologies for monitoring, protecting, and regenerating biodiversity, supporting companies in defining customized climate strategies based on the analysis of their impacts and dependencies on nature. With a consolidated portfolio in Italy, Germany, and France and significant partnerships, 3Bee continues its expansion into international markets to create concrete impact through technology.