EU Imposes New Restrictions on “ESG” Funds

Asset management funds within the European Union now face restrictions regarding what they can refer to as an ESG fund. Under the new guidelines, any investment product that carries the ESG acronym in its name, or any words to that effect, is required to have a minimum of 80% of its assets under management (“AUM”) in undertakings that are connected to social, governance and environmental objectives.

These new guidelines were issued by ESMA, the European Securities & Markets Authority. In a statement, ESMA pointed out that one of the first pieces of information that investors get about an investment fund is the name of that fund. The name can also have a sizeable impact on the investment decision that potential investors make, the statement added.

The regulatory authority says these guidelines are intended to spell out circumstances under which funds with ESG or other related descriptions/terms can be regarded as unclear, unfair or outright misleading.

It should be noted that ESMA started the work of drafting these rules in 2022. At that time, there was a boom in ESG investing, and concerns were raised about the possible misleading nature of some investment products. Earlier in 2021, the EU had also started enforcing its rulebook called Sustainable Finance Disclosure Regulation. Currently, that rulebook has assets worth $13 trillion registered.

Bloomberg Intelligence says approximately 60% of the assets under the Sustainable Finance Disclosure Regulation indicate that they promote ESG or are actually ESG-focused.

ESMA plans to publish its new guidelines on its website. This publication will be done in the different official languages of the bloc. Once this publication is completed, the guidelines will come into force. Funds that are already operational have half a year to comply with the guidelines while those that are to be created are obliged to adhere to the guidelines from the onset.

The member countries are also required to incorporate these guidelines within their supervision mechanisms or, if they are not willing to do so, inform ESMA about the reasons for their noncompliance.

In related news, the EU has asked 20 airlines to respond to accusations of ESG “greenwashing” within 30 days. This notification comes amid growing concerns that some players within the aviation industry were making unsubstantiated or even misleading sustainability claims in their promotional materials.

Such actions are intended to ensure that companies making ESG claims actually deliver on those claims rather than use that label as a way to attain their own selfish interests by misleading their target audiences or customers.

In North America, companies such as Reflex Advanced Materials Corp. (CSE: RFLX) (OTCQB: RFLXF) are quietly adding ESG considerations in their activities in ways that are expected to benefit their shareholders despite the negative press resulting from the politicization of ESG by some sections of the public.

NOTE TO INVESTORS: The latest news and updates relating to Reflex Advanced Materials Corp. (CSE: RFLX) (OTCQB: RFLXF) are available in the company’s newsroom at https://ibn.fm/RFLXF

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