Guidelines on funds' names using ESG or sustainability-related terms

6 December 2024
Ref.: 2408113

Circular no.: 32/2024
To: Management companies of UCITS, managers of specialised funds as well as the Association of Companies in financial services.

Subject: Guidelines on funds' names using ESG or sustainability-related terms.

The European Securities and Markets Authority (ESMA) has issued guidelines on funds' names using ESG1 or sustainability-related terms (ESMA34-1592494965-657; Guidelines on funds' names using ESG or sustainability-related terms; hereinafter the guidelines).

The guidelines are addressed to management companies of UCITS, cf. Act no. 116/2021 on UCITS, managers of specialised funds, cf. Act no. 45/2020 on the same subject, managers of European venture capital funds and European social entrepreneurship funds, cf. Act no. 31/2022 on European venture capital funds and European social entrepreneurship funds, managers of European long-term investment funds, cf. Act no. 115/2022 on European long-term investment funds, and managers of money market funds, cf. Act no. 6/2023 on money market funds.

The guidelines specify further when the use of terms in funds' names related to environmental, social and governance or sustainability is unfair, unclear or misleading. Attention is drawn to the fact that the list of terms in the guidelines is not exhaustive, as the use of terms must always be in accordance with the principles of business practices, including the obligation to act honestly and fairly and the obligation to ensure that information in marketing material is presented in a fair and clear manner that is not misleading. Regard will be had to Icelandic translations of terms appearing in the guidelines, as they appear in translated versions of SFDR2, Taxonomy3 and Regulation (EU) no. 2022/1288. The criteria apply to the terms regardless of the language in which they are presented.

The purpose of the guidelines is to further specify the obligations of point (a) of the first paragraph of Article 14 of the UCITS Directive4, point (a) of the first paragraph of Article 12 of the AIFMD Directive5 and the first paragraph of Article 4 CBDF

[1] ESG stands for environment, social and governance. The abbreviation is a translation of ESG which stands for environmental, social, and governance.

[2] Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector.

[3] Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment.

[4] Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS).

[5] Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on alternative investment fund managers.

of the Regulation6, but those provisions deal with the obligations of management companies of UCITS and managers of specialised funds to act in accordance with sound and healthy business practices and to ensure that information in marketing material is presented in a fair, clear and not misleading manner.

The guidelines are issued, among other things, on the basis of the third paragraph of Article 16 of the ESAs Regulations, which were implemented into Icelandic law by Act no. 24/2017 on the European system of financial supervision. According to the provision, competent authorities and the relevant supervised entities shall make every effort to comply with the guidelines of the supervisory authorities and general recommendations.

The Financial Supervisory Authority directs the recipients of this circular to familiarise themselves with the said guidelines and take them into account in their activities as applicable. In the case of funds established before 1 December last, the guidelines apply to them from 1 June 2025, in accordance with the transitional period in items 4-6 of the guidelines.

This circular will be published on the Central Bank's website along with a link to the English version of the guidelines.

Yours faithfully,
CENTRAL BANK OF ICELAND

Linda Kolbrún Björgvinsdóttir managing director conduct supervision

Inga Dröfn Benediktsdóttir head of department conduct supervision

[6] Regulation (EU) 2019/1156 of the European Parliament and of the Council of 20 June 2019 on facilitating cross-border distribution of collective investment undertakings.