What comes with a fund name …

‘Sustainable’, ‘ESG’ or ‘green’ sound good, but is every fund really entitled use such names? Find out here when a fund earns such a name.

What is an investment fund?

The manager of a fund collects money from a large number of investors and then invests it in accordance with a defined strategy – for example in shares, bonds or real estate. There are many different fund strategies – in this case the focus is on sustainability or ESG aspects. “ESG” stands for environmental, social and good governance.

What does the fund name got to do with sustainability?

Terms like “sustainable” (nachhaltig), “green” (grün) or “ESG” indicate that a fund takes certain environmental or social criteria into account when selecting undertakings. As a result, the funds may invest e.g. in manufacturers or windpower plants, clothing companies with fair wages or companies with strict rules against corruption. However, not all ESG funds are equally sustainable. Some only consider ESG criteria in addition in investment, while others pursue a specific sustainable objective – like investments in renewable energies.

What applies for such funds?

If a fund’s name contains terms like “nachhaltig” (sustainable) or “grün” (green) in their name, new specific EU-harmonised requirements apply:

• At least 80 % of funds must be in investments that promote ecological or social features or pursue sustainable objectives.
• Entities that contravene ESG criteria e.g. weapons manufacturers or coal-producers, are generally excluded.

How do I find out whether a fund is really sustainable?

It is worthwhile looking at fund documentation: Funds prospectuses, sustainability reports and the key information document show whether a fund is worthy of its name. Independent ESG ratings and quality certificates such as the Austrian Ecolabel for Sustainable Financial Products also provide guidance. They allow you to recognise whether the respective sustainability/ESG strategy actually correspond to their own sustainability preferences.

Who sets the rules?

The European Securities and Markets Authority (ESMA) has published Guidelines that are intended to ensure that fund names are not only used for advertising purposes. The declared objective is to prevent you from misleading designations and to ensure greater transparency.

What happens if these rules are disregarded?

We at the FMA check whether the funds comply with the Guidelines. If the requirements are not met, an explanation is necessary and must be duly correctly. Where doubts exist about the fund name, we intervene as the fund name must observe what it promises.

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