The European Securities and Markets Authority’s (ESMA) new fund naming guidelines create inconsistencies with other sustainable finance regulations, the European Fund and Asset Management Association (EFAMA) has warned. In particular, it is misaligned with the EU Green Bond Standard (EU GBS), running the risk of hampering growth in the corporate green bond sector. As such, clarification is urgently needed to enable, rather than restrict, EU sustainable investment, EFAMA said. “Our hope is that ESMA will see the logic of this when it comes to green bonds,” said Anyve Arakelijan, Regulatory Policy Advisor at EFAMA. “If Europe wants to remain a world leader in sustainable finance, consistent understanding and application of key concepts will be crucial.” While the EU GBS doesn’t restrict the eligibility of issuers or exclude companies based on standards for Paris-aligned benchmarks (PAB), the fund naming rules do – regardless of the project being financed. “This means that a bond fund investing in green bonds might have to change names if it does not restrict the eligibility of bond issuers,” EFAMA explained, adding that this restriction limits the investable universe for green bond funds. The largest corporate issuers are typically utility companies, which play a vital role in developing the infrastructure needed for a sustainable future, the association said – as such, excluding them from funds using sustainable or environmental terms in their names could raise their cost of capital, hindering key projects and slowing down the energy transition. “The EU has seen significant growth of the green bond market and accounted for almost half the world’s green bonds last year,” said EFAMA Director General Tanguy van de Werve. “If the EU wants to remain competitive in this area and facilitate the financing of green projects in Europe and beyond, regulators and supervisors need to ensure rules like the fund naming guidelines don’t hinder this market or unnecessarily increase regulatory complexity for end investors.”
