The goal of this action is to promote uniform comprehension and application of these rules throughout the financial industry.

Green bonds, the bar for "meaningfully investing in sustainable investments," and the definition pertaining to the exclusion of contentious weaponry are the three main topics covered in the recently released Q&As. By avoiding false claims and ensuring that funds appropriately represent their dedication to sustainability in their names, ESMA's effort increases investor trust.

The Q&A explains why European Green Bonds are not subject to investment limitations that often bar businesses that don't share environmental objectives. Given the impending implementation of the European Green Bonds Regulation and its precedence over industry-specific laws like the UCITS Directive and AIFMD, this exemption is essential. Fund managers are encouraged to use a "look-through" strategy for non-European green bonds in order to confirm if the financed activities meet the predetermined exclusion criteria.

Furthermore, if sustainable assets make up less than 50% of the portfolio, funds should not claim to be "meaningfully investing in sustainable investments," according to the Q&A on sustainable investments. The purpose of this definition is to keep the phrase "sustainable investments" from being diluted and to standardize procedures across funds.

According to ESMA, the exclusion criteria for contentious weapons must be in line with the major adverse effect criterion 14 of the Sustainable Finance Disclosure Regulation (SFDR). A consistent method for identifying what qualifies as a contentious weapon in investment portfolios is ensured by this standardization.

In response to the rising demand from investors for truly sustainable investment alternatives, ESMA has issued recommendations and clarifications that are part of a larger effort to improve transparency and integrity across the ESG investing industry.