EU Watchdog Weighs Changes to Sustainable Fund Naming Rules

The European Securities and Markets Authority is evaluating amendments to new regulations on sustainable fund labeling. These rules, effective from November 21, may prohibit funds using 'green' terminology from investing in highly polluting sectors, sparking industry concerns about restricting funding for decarbonization projects.

The European Union's securities watchdog is deliberating potential changes to forthcoming rules surrounding the naming of sustainable investment funds. The move comes after investor warnings that the regulations might impede financial access for polluting entities aiming for decarbonization.

The European Securities and Markets Authority (ESMA) is set to impose these rules from November 21, dictating how funds may label themselves as 'sustainable' or 'green'. This initiative marks the latest effort to curb greenwashing—where entities exaggerate their environmental credits. The guidelines prohibit funds from using terms like 'green', 'environmental', or 'impact' if they invest in oil, gas, coal, or most pollutive electricity firms.

Fund managers are faced with either rebranding their funds or divesting from non-compliant assets. A report by Clarity AI finds that 55% of eligible funds have at least one investment breaching these criteria. While some argue this could limit sustainable investments by blocking high-emission sectors from financing clean projects, others express fears about diminishing stakeholder confidence.

(With inputs from agencies.)