BaFin has started to use the European Securities and Market Authority’s (ESMA) ESG fund naming rules earlier than expected as the German regulator encourages “a level playing field” for EU funds.
The rules – published in May – state ETFs using the term ESG or sustainable in their name must have at least 80% of investments tied to environmental or social characteristics.
The new rules were expected to come into effect in the autumn of this year.
On the early implementation, a spokesperson from BaFin said: “As soon as the new rules were introduced, BaFin has adjusted its administrative practice with regard to all new applications.
“BaFin welcomes the new naming rules as they set a level playing field for all funds within the EU and yield added transparency for consumers.”
The rules also state funds with ESG or sustainable in their name must also not include fossil fuel companies, adhering to Paris-Aligned Benchmark (PAB) exclusion metrics.
The German regulator added: “A fund’s name is an important marketing tool. Therefore, BaFin’s position is that we need requirements that ensure reliable and transparent names.”
The re-evaluation of naming rules comes after ESMA launched a call for evidence on ESG fund naming rules in November 2022 as it bids to stamp out greenwashing and protect investors.
In June, Morningstar Sustainalytics research found passive funds will be “disproportionately” impacted by the EU’s updated ESG and sustainability fund naming rules.
Out of its 1600 funds impacted by the new rules, the research found 21% (354) are ETFs and index funds. However, they account for almost half (45%) of the $40bn worth of stocks affected by the exclusion rules.
