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Query on ESMA Naming & Marketing Rules for Fund of Funds/MPS

  • 1.  Query on ESMA Naming & Marketing Rules for Fund of Funds/MPS

    Posted 23-09-2024 11:22

    Hi everyone,

    Has anyone reviewed the ESMA naming and marketing rules from a Fund of Funds or Model Portfolio Service (MPS) perspective?

    Specifically, in relation to the PAB (Paris-Aligned Benchmark) exclusions, if you include terms like 'sustainable' in your fund's name, do all the portfolios need to fully comply with the PAB exclusion criteria (i.e., must every underlying fund meet 100% of the exclusions)? Or is there a certain threshold for compliance of the FOF?

    I'd appreciate any insights you may have on this.

    Kind regards,

    Francesca



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    Francesca Wheble
    Responsible Investment Lead
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  • 2.  RE: Query on ESMA Naming & Marketing Rules for Fund of Funds/MPS

    Posted 24-09-2024 09:17

    Hi Francesca

    ·       For fund of funds, I would think the same exclusion criteria apply on a look through basis for the underlying holdings. The fund must ensure that the underlying funds it invests in also meet the 80% threshold for sustainability-related investments and adhere to the exclusion criteria. Additionally, the fund of funds must ensure that its overall portfolio commits to meaningful sustainable investments as per Article 2(17) of the SFDR.

    ·       NB: ESMA notes in its feedback in its Final Report:  The combination of the exclusion criteria and the 80% threshold is, in ESMA's opinion, an 
    appropriate way to have both screening criteria that eliminate investments in companies which are not in line with the name of the fund and at the same time set a robust majority of assets invested in accordance with the name and thus the strategy of the fund. 

    and

    ESMA confirms that the exclusions would apply in an equivalent way to Article 12(1) of  Commission Delegated Regulation (EU) 2020/1818, i.e., to "companies", regardless of how investment in those companies are made or which financial instrument those companies may issue. In other words, there would be no distinction between what kind of financial instrument an investment is made in, the company would still be excluded.

    Some further insight into the Guidelines and Final Report can be found here by Simmons & Simmons: ESG: ESMA Guidelines on fund names – Top 10 talking points | Simmons & Simmons (simmons-simmons.com)

    I haven't seen any other interpretation/commentary to suggest otherwise.

    Regards


    James



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    James Doyle
    Director, Green Finance, Investment Management
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    Original Message


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