The European Securities and Markets Authority (ESMA) is considering clarifications to its upcoming ESG fund naming rules following industry pushback. The rules, effective from November 21, aim to eliminate greenwashing by restricting funds labeled as “green” from investing in high-emitting sectors like oil, gas, and coal. However, critics argue that this could limit access to financing for polluting companies looking to decarbonize. Fund managers claim the rules could hinder energy transition projects by making capital more expensive for industries critical to these efforts. 

Despite concerns, ESMA is standing firm on its goal to provide clear guidelines for sustainable funds. However, the organization is reviewing whether more guidance is needed, especially for green bonds. These bonds are crucial to financing renewable energy projects, yet their exclusion could complicate the path to carbon neutrality. Supporters of green bonds argue that they promote cleaner investments, while critics believe they don’t push companies to fundamentally change their high-emitting business models. 

Energy companies make up a significant portion of the global green bond market, issuing over $70 billion worth of green bonds in 2023. Excluding them from funds labeled as sustainable may increase their cost of capital, potentially slowing key decarbonization projects. The European Fund and Asset Management Association (EFAMA) has also warned that limiting green bond investments could delay the energy transition in sectors vital to achieving carbon neutrality goals. 

As the debate continues, investors and stakeholders await further clarification from ESMA on how to balance sustainability with financial support for decarbonization projects across the continent. 

Sources :  

https://www.reuters.com/sustainability/eu-watchdog-clarify-esg-fund-naming-rules-after-backlash-2024-10-11/ 

https://www.xm.com/vn/research/markets/allNews/reuters/eu-watchdog-to-clarify-esg-fund-naming-rules-after-backlash-53943794 

https://ecoactivetech.com/eu-watchdog-to-clarify-esg-fund-naming-rules-following-backlash/ 

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