Earlier today (13 December 2024), the European Securities and Markets Authority (“ESMA“) published three new Questions and Answers in each of its UCITS Q&A and AIFMD Q&A.

New Questions and Answers

The new Questions and Answers provide clarity on specific aspects of the application of the ESMA’s Guidelines on funds’ names using ESG or sustainability-related terms (the “Guidelines“), which have applied to new funds since 21 November 2024 and will apply to funds existing before that date from 21 May 2025. Today’s clarifications, including in relation to the interpretation of “meaningfully investing in sustainable investments”, will be welcomed by fund managers seeking to comply with the Guidelines.

The three new Questions and Answers are set out below:

• QA 2373 (UCITS Q&A)/2374 (AIFMD Q&A): Is there a minimum level for investment funds with the term “sustainable” in their name to be considered to be investing “meaningfully” in sustainable investments?

ESMA: The third indent of paragraph 18 of the Guidelines foresees that funds using “sustainable” terms should commit to invest meaningfully in sustainable investments referred to in Article 2(17) of the Sustainable Finance Disclosures Regulation (“SFDR“). While national competent authorities (“NCAs“) should carry out a case-by-case analysis of how any sustainability-related term is used in the name of a fund, they may find that investment funds with “sustainable” terms in their names investing less than 50% of the proportion of investments in sustainable investments are not “meaningfully investing in sustainable investments”. That amount could be higher, subject to the circumstances of the case.

• QA 2368 (UCITS Q&A)/2370 (AIFMD Q&A): When applying the exclusions referred to in paragraphs 16-18 of the guidelines, can fund managers consider the underlying project for use of proceeds instruments or should the manager always consider the whole issuer?

ESMA: With regard to European Green Bonds that have been issued under the European Green Bonds Regulation, investments in such instruments do not need to be assessed under the exclusions of investments referred to in paragraphs 16-18 of the Guidelines, because the Guidelines are intended to be read in conjunction with Level 1 legislation such as the European Green Bonds Regulation and should consider the high level of protection guaranteed by the EU legal framework for such investments.

With regard to investments in any other type of use of proceeds instruments, such as green bonds not issued under the European Green Bonds Regulation, the exclusions referred to in paragraphs 16-18 of the Guidelines should apply on a look-through basis to the economic activities financed by such instruments. The look-through approach should determine that the instrument invested in does not finance any activities referred to in Article 12(1)(a-b) and (d-g) of Commission Delegated Regulation (EU) 2020/1818. Investments in companies excluded under Article 12(1)(c) of that Delegated Regulation would not be able to benefit from this look-through approach (i.e. those companies are always excluded under the exclusions referred to in paragraphs 16-18 of the Guidelines).

In publishing this particular Question and Answer, ESMA advised that it decided to clarify the treatment of Green Bonds because of the imminent application of the European Green Bonds Regulation and the reference in the mandates in the AIFMD and UCITS Directive noting that sectoral legislation takes precedence.

• QA 2371 (UCITS Q&A)/2372 (AIFMD Q&A): How should the exclusions related to controversial weapons referred to in Commission Delegated Regulation (EU) 2020/1818 be interpreted for different types of controversial weapons?

ESMA: For the purpose of applying the exclusions referred to in paragraphs 16-18 of the Guidelines related to Article 12(1)(a) of Commission Delegated Regulation (EU) 2020/1818 (companies involved in any activities related to controversial weapons), national competent authorities (“NCAs“) may, in the absence of any other clarification in that Delegated Regulation, refer to the list of controversial weapons provided in indicator 14 of Table 1 of Annex I of Commission Delegated Regulation (EU) 2022/1288, namely “anti-personnel mines, cluster munitions, chemical weapons and biological weapons”.

Central Bank Process

To facilitate orderly implementation of the Guidelines in Ireland, the Central Bank has established a streamlined filing process for UCITS and AIFs seeking a change of name and for updates to fund prospectuses, supplements and SFDR annexes based on the requirements set out within the Guidelines, which opened on 21 November 2024.

For further details on the Guidelines, please see our update: ESMA finalises Guidelines on use of ESG or sustainability-related terms in Fund names – Arthur Cox LLP

For further details on the Central Bank’s filing process for Guidelines-related changes, please see our recent update: Central Bank issues updated process clarification for changes to UCITS and AIFs resulting from ESMA’s fund names guidelines – Arthur Cox LLP

For any further details or information on application of the Guidelines or the filing process, please contact your usual Arthur Cox contact.