ESMA has focused on terms used in three categories of funds. Each has different usage requirements. A summary of the requirements associated with each category is provided below.

1. Funds using transition, social and governance-related terms should:

• meet an 80 per cent threshold linked to the proportion of investments used to meet environmental or social characteristics or sustainable investment objectives
• comply with the Climate Transition Benchmark exclusions
• for transition funds only – meet measurable social or environmental transition goals

2. Funds using environmental or impact-related related terms should:

• meet an 80 per cent threshold linked to the proportion of investments used to meet environmental or social characteristics or sustainable investment objectives
• comply with the Paris-aligned Benchmark exclusions
• for impact funds only – have the objective of meeting positive and measurable social or environmental impact alongside financial returns

3. Funds using sustainability-related terms should:

• meet an 80 per cent threshold linked to the proportion of investments used to meet environmental or social characteristics or sustainable investment objectives
• comply with the Paris-aligned Benchmark exclusions
• commit to investing meaningfully in sustainable investments as defined in Article 2(17) of the SFDR

For reference, the Climate Transition Benchmark exclusion requires the following companies to be excluded from investments:

• companies involved in any activities related to controversial weapons;
• companies involved in the cultivation and production of tobacco;
• companies that benchmark administrators find in violation of the United Nations Global Compact principles or the OECD Guidelines for Multinational Enterprises.

For reference, the Paris-aligned Benchmark exclusion requires the following companies to be excluded from investments:

• companies involved in any activities related to controversial weapons;
• companies involved in the cultivation and production of tobacco;
• companies that benchmark administrators find in violation of the United Nations Global Compact principles or the OECD Guidelines for Multinational Enterprises;
• companies that derive 1 per cent or more of their revenues from exploration, mining, extraction, distribution or refining of hard coal and lignite;
• companies that derive 10 per cent or more of their revenues from the exploration, extraction, distribution or refining of oil fuels;
• companies that derive 50 per cent or more of their revenues from the exploration, extraction, manufacturing or distribution of gaseous fuels;
• companies that derive 50 per cent or more of their revenues from electricity generation with a GHG intensity of more than 100 g CO2 e/kWh.

AIMA has categorized this proposal as Low Priority/Medium Impact and it is therefore represented in lime green in the AIMA Regulatory Horizon Scan gantt chart.

Timeline and summary of upcoming changes

¹ New funds are those created on or after 21 November 2024.

² Existing funds are those that existed before 21 November 2024.