The Austrian Financial Market Authority (FMA) places particular value on investors in the financial markets receiving a realistic picture, and that no claims are made in marketing and sales for products which do not stand up in reality. One such example of this is greenwashing: For example investment funds that advertise that money collected will be channelled into good environmental, social or governance (ESG) purposes, but which fail to live up to this promise. Such a promise may already be made based on the fund’s name, in using terms like “grün/green”, “nachhaltig/sustainable” or ESG to attract necessary attention to the fund. “Many investors want their money to be used to finance ESG investments,” remarked the FMA’s Executive Directors, Helmut Ettl and Eduard Müller. “They should be able to rely on a fund being sustainable, if it is labelled as ‘sustainable’. Preventing greenwashing is therefore an important priority for the FMA.”
New Guidelines for Fund Names containing ESG Terms
On 21 November 2024 new European Guidelines issued by the European Securities and Markets Authority (ESMA) enter into force that will make funds liable, if they advertise with ESG or sustainability-related terms in the fund name. The Guidelines are intended to protect investors from unfounded or exaggerated sustainability claims in the names of funds. In turn, fund managers should be provided with clear criteria that they can use to judge whether they are allowed to use such terms in the names of their funds.
For the first time the Guidelines determine throughout Europe that a minimum threshold of 80% of investments should be used in order to be allowed to use such terms. This means that if the name implies a specific ESG investment goal then at least 80% of the management assets must also meet this objective. Previously, due to an absence of European regulatory standards, in many cases a threshold of only 50% was used. In contrast, the Guidelines also contain criteria for exclusion: Depending on the ESG-related term in the fund name, investments in companies from certain sections are also not permitted: coal, oil, gas and emission-intensive generation of electric power (in this instance the respective specific thresholds of company revenues in the sectors apply), controversial weaponry, tobacco, as well as firms that do not pursue specific good governance principles.
Over 200 Austrian funds affected
In Austria, over 200 funds with assets under management of over € 40 billion are directly affected by the Guidelines. Almost all Austrian management companies offer such sustainability funds. Most funds explicitly use ESG and sustainability terms in the name of the fund, followed by environmental and social terms. Furthermore ethical terms in the fund name also make up an established group in Austria. Indirectly, the new Guidelines on Fund Names are also relevant to other sectors of the financial market, such as securities intermediation at banks, fund-linked life insurance plans by insurance undertakings, or sustainable investments by Pensionskassen and corporate provision funds.
FMA welcomes these Guidelines and is adopting them in its administrative practices
“We welcome the ESMA Guidelines as they contribute to greater market transparency, define a European minimum standard and there contribute to a level playing field” remarked Ettl and Müller. The FMA will therefore adopt the ESMA Guidelines into its administrative practices with effect from 21 November 2024 and in particular in the case of new funds will already check the requirements within the approval procedure as being binding criteria in the fund rules of the funds. In order to monitor ongoing compliance with the new requirements and to reduce the risk of greenwashing, the FMA conducts targeted supervisory activities for checking disclosures as well as compliance with the disclosed investment strategy. To do so, the FMA is using a greenwashing analysis framework for retail funds, which also makes used of automated text analysis and artificial intelligence methods.
ESMA published all the language versions of the Guidelines on 21 August 2024, which enter into force three months later, on 21 November 2024. There is a transition period of six months, i.e. until 21 May 2025 for funds that already existed prior to 21 November 2024. All new funds that are established from the date that the Guidelines’ entry into force, are required to apply the Guidelines immediately.
Further background information:
- ESMA Press Release of 21 August 2024
- English language version of the ESMA Guidelines
- Let’s talk about money – Greenwashing
Journalists may address further enquiries to:
Boris Gröndahl (FMA Media Spokesperson)
Telephone: +43 (1) 249 59-6010
Mobile: +43 676 8824 9995