(a) Funds that track the performance of an ESG-related index
For ESG Objective Funds that reference any aspect of ESG in their name and whose investment objectives indicate that the fund tracks the performance of an ESG-related index, staff’s view is that: (a) the ESG focus(es) of the index should be consistent with the ESG focus(es) indicated in the fund’s name; and (b) the fund’s investment objectives and/or investment strategies disclosure should indicate that the fund’s portfolio will be comprised primarily of issuers that reflect the ESG focus(es) identified in the fund’s name and investment objectives.
Unnamed ESG-related index: For ESG Objective Funds whose investment objectives state that the fund will track the performance of an ESG-related index in order to meet its ESG-related investment objectives, but that does not name the specific ESG-related index in the investment objectives, staff’s view is that the investment objectives should clearly identify the ESG-related characteristics of any ESG-related index that the fund will track.
Investments in issuers that are not index constituents: Where an ESG Objective Fund’s investment objectives indicate that the fund tracks the performance of an ESG-related index but the fund is permitted to track the index by investing in issuers that are not constituents of the index (including by using a sampling strategy), staff’s view is that such issuers should have ESG characteristics that are similar to the constituents of the index, particularly in relation to the ESG characteristics that are relevant to the ESG focus of the fund. For example, if a fund whose investment objectives indicate that the fund will be tracking an index that is focused on environmental sustainability invests in issuers that are not index constituents, such issuers should share similar environmental characteristics to the index constituents.
(b) Funds that invest in underlying funds
For ESG Objective Funds that invest in underlying funds in order to meet their investment objectives, the ESG focus(es) of the underlying funds should be consistent with the ESG focus(es) of the fund.
In addition, staff remind IFMs that the holdings of any underlying funds held by a top fund, including any ESG-Related Fund, should be consistent with the investment objectives and strategies of the top fund, including, for example, any exclusionary screening criteria used by the top fund.