ESMA promotes clarity in claims on impact and transition through two additional thematic notes

Impact claims

Claims that explicitly or implicitly mention “impact”, “positive change” or equivalent terms, made through funds, use of proceeds (UoP) bonds and sustainability-linked bonds (SLBs).

Climate transition claims

Forward-looking claims relating to the gradual improvement of the climate performance of companies, assets or activities towards a climate-neutral economy, made through funds, bonds and benchmarks.

Impact claims

• Intentionality (explicit aim to generate positive impact, supported by a theory of change),
• Additionality (generating positive impact that might not otherwise happen, which may relate to investee impact and/or investor impact, two distinct concepts that should not be conflated)
• Measurability (tracking progress towards objectives through KPIs focusing on outputs, outcomes or impact).

Climate transition claims

• Transition ambition (objectives, targets and metrics, base year and base value, and contribution to EU or global climate objectives),
• Implementation strategy
• Action plan, and progress achieved towards the ambition.
   

Impact claims

Practices diverge and market participants often do not explain their approach well, in particular:

• impact objectives may be too broad (e.g. promoting UN SDGs), absent or non-binding, with a vague or missing theory of change,
• ESG criteria, or the selection of investments that avoid harm, may be used instead of impact criteria,
• for funds, the distinction between investee and investor impact is often unclear, and standard ESG engagement may be presented as impact-generating,
• for bonds, financed activities or targets may be immaterial to the issuer’s core operations, and post-issuance reporting may not be aligned with pre-issuance commitments.

Climate transition claims

Practices are evolving and transition claims are substantiated in different ways depending on the product:

• funds define their ambition by reference to portfolio emissions reductions, portfolio construction criteria or contribution to real-economy decarbonisation, using combinations of exclusions, positive screening and engagement,
• benchmarks reflect transition claims in their methodology, while for bonds the link between the financing instrument and the stated transition ambition is not always clearly articulated,
• systematic reporting on progress achieved against previously stated transition ambitions remains limited.

Impact claims

• Clarify the environmental or social problem(s) targeted and how the intended impact will be attained and measured,
• Be clear and consistent about the ambition with reference to intentionality, additionality and measurability,
• For funds, clarify whether the fund aims to generate investee impact, investor impact or both and, where the claim is limited to investee impact, make clear that investing in the fund does not bring additional impact,
• Select relevant impact KPIs (considering ex-ante targets), explain whether they measure outputs, outcomes or impact, and make available assumptions and methodological limitations,
• For bonds, ensure consistency with the issuer's sustainability strategy, be transparent about the materiality of the projects or targets, and report against objectives over time.

Climate transition claims

• Explain the ambition, the intended transition outcome and its scope, as well as the science-based scenarios or pathways underpinning it;
• Where targets are disclosed, specify the metrics, time horizon, base year, base value and intermediate milestones, and explain key assumptions and challenges;
• Explain how underlying holdings, benchmark constituents or financed activities support the ambition, including how any exposure to fossil fuel-related activities or high-emitting sectors is consistent with it;
• Regularly report progress against previously communicated ambition, targets and milestones, explaining material data limitations and assumptions;
• Communicate in a timely manner where progress falls below expectations or targets are no longer considered achievable, including the reasons and any corrective actions.

Impact claim

• Don't make claims about generating positive impact without a theory of change clearly explaining how impact will be achieved,
• Don’t rely on exclusion-based screening or ESG risk-focused metrics as substitutes for impact-related criteria, or label products as “impact” solely due to asset class or sector,
• Don’t imply that ownership of listed securities alone generates impact, or reference impact-motivated engagement without clarifying how it differs from standard ESG engagement,
• Don’t report selectively or omit binding impact objectives and KPIs selected ex-ante.

Climate transition claim

• Don’t rely solely on broad aspirational statements, or suggest that portfolio decarbonisation equates to real-economy emissions reductions,
• Don’t rely on ESG ratings, scores or proprietary assessments without explaining their methodology and relevance to the transition ambition, or refer to stewardship or engagement without explaining how they support the transition ambition, including any escalation mechanisms,
• Don’t report selectively on positive developments, or change the metrics and methodologies used to report progress without explaining the reasons and implications.