ESMA Releases Practical Guidance on Sustainability Claims and ESG Credentials

On 1 July, the European Securities and Markets Authority (“ESMA”) released “thematic notes” on sustainability claims. ESMA emphasises that these are intended to inform and educate market participants about making clear, fair and not misleading sustainability claims, with the initial thematic note focussing on references to “ESG credentials” (e.g. participation or involvement in voluntary alliances or initiatives, ESG labels, ESG awards and comparisons to peers). ESMA states that other thematic notes will follow on other topics as judged necessary.

Key Expectations

Building on other European Supervisory Authority guidance around greenwashing, ESMA highlights four principles that should underpin sustainability-related claims:

1. Accurate: Provide a balanced and factual reflection of the entity or product’s positive and negative sustainability characteristics.
2. Accessible: Ensure claims are presented in a way that is understandable, but not overly simplified, and easily found by investors.
3. Substantiated: Base claims on robust evidence and credible methodologies, with full disclosure of underlying assumptions or limitations.
4. Up to Date: Keep claims current and promptly disclose any material changes or revisions to the sustainability profile.

ESMA notes that these principles do not create new disclosure requirements, but aim to remind market participants about their responsibility to only make fair, clear and not misleading claims.

On ESG credentials specifically, ESMA focusses on claims avoiding overstating the significance of ESG credentials.

ESMA outlines “do’s and don’ts” and examples of good and bad practice in relation to ESG credentials, industry initiatives, labels and awards and comparisons to peers. Whilst these are specific to each category, some common themes are:

• ESMA encourages detailed information being given on the nature, significance, date and assessments and monitoring behind ESG credentials;
• firms should not reference ESG credentials for products that don’t take sustainability into account;
• firms shouldn’t exaggerate the meaning of a credential;
• firms shouldn’t use vague, outdated, unrepresentative, irrelevant or cherry picked credentials; and
• ESMA discourages firms from using certain regulatory classifications and disclosures (such as SFDR disclosures) as a “label”.

Practical Implications

The thematic notes serve as another reminder (alongside high profile enforcement cases, and other guidance) of the current focus of regulators on greenwashing. Firms should ensure that they have robust processes in place to ensure that their sustainability related claims align with regulatory requirements and expectations, and should specifically consider claims referring to ESG credentials in light of this ESMA guidance.

Firms should also keep an eye out for further thematic notes from ESMA, since it has suggested that more guidance will follow on other types of sustainability claims.