Don’t be surprised if your “green” fund changes its name in the coming months. The legislative fog surrounding these financial products, half of which invest in fossil fuels, is clearing. On May 14, the European Securities and Markets Authority (ESMA) issued guidelines for any fund labeled “sustainable”, “ESG”, “climate”, “green”, “social”, “transition” or “impact” to file.
By May 21, 2025 at the latest, at least 80% of its outstanding assets will be dedicated to “achieve environmental, social or sustainable investment objectives”. These funds with sustainable-sounding names other than “transition” and “social” must also exclude fossil fuels. That’s why they should ban companies whose revenues come from more than 1% of coal, 10% of oil or 50% of gas.
These instructions will apply to all investment products distributed in the European Union, regardless of the country where their distributor is located. Provided that the market authorities of the member countries adopt these recommendations. They have until October 21 to indicate whether they comply fully, partially or not at all, in the latter case requiring solid motivation.
$40 billion in disinvestment
In France, the Financial Markets Authority (AMF) has not yet taken a position. It will have to provide solid reasons to refuse, even though it has made the fight against greenwashing one of its priorities and sanctioned a fund manager for the first time for greenwashing in June.
The German securities regulator has already announced that it will adopt these new rules.
This framework has the potential to revolutionise the sustainable investment market. Today, two-thirds of the “green” funds sold to Europeans do not meet the thresholds imposed by ESMA, according to the analysis firm Morningstar, which examined 4,300 investments. If all the managers changed their strategy to maintain the “green” label, divestments could reach 40 billion dollars (about 36.18 billion euros), of which 3.5 billion for TotalEnergies alone, the platform estimates.
It remains to be seen whether management companies intend to invest in accordance with the new rules or simply rename their funds that are not “green” in the ESMA sense. Those interviewed say they have not yet made any arbitration. BNP Asset Management’s head of public affairs, Laurence Caron-Habib, analyses “around two hundred funds on which an impact analysis is carried out, that is, one third of the ESG funds and between 40% and 50% of those open to individuals”.
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