On May 14, 2024, the European Securities and Markets Authority (ESMA) has published its final report: “Guidelines on funds’ names using ESG or sustainability- related terms“ to address greenwashing risk stemming from ESG- or sustainability-related terms used in investment fund names. The purpose of these guidelines is to specify the circumstances where the fund names using ESG or sustainability-related terms are unfair, unclear, or misleading. With regard to this, ESMA provides explanations of key terms under these guidelines. ESMA states that “the need to enhance investor protection is particularly evident when funds use terms which suggest an investment focus in

Sustainability-oriented investors should expect to find some unexpected holdings in their portfolio when they choose products with a swap-based (synthetic) index replication approach. While index products with a full replication approach hold normally only the constituents of their respective index, the portfolio of a synthetic product is built with a swap that replicates the risk/return profile of the respective index and the so-called collateral. The securities held as collateral are often chosen based on their liquidity and transaction costs, as this helps to minimize the costs of managing the product. If the securities for the collateral are not chosen with

The growth of sustainable investing is constantly accelerating and can be seen as one of the most important growth drivers for the fund industry over the next few years. From my point of view, we may reach the breaking point where the majority of assets are managed with a sustainability-based approach rather than in a conventional way within the next five years. Aside from new fund launches, one of the drivers for this massive shift is the repurposing of mutual funds, since especially in Europe an increasing number of conventional funds have started to integrate environmental, social and governance (ESG)