ESMA prioritises the fight against greenwashing in its new Sustainable Finance Roadmap for 2022-2024

ESMA has published its Sustainable Finance Roadmap setting out its priority areas and actions for 2022–2024. Building on ESMA’s 2020 Strategy on Sustainable Finance, the Roadmap is a tool to ensure the coordinated implementation of ESMA’s sustainable finance mandate over the next three years. ESMA notes that it is intended as a living document that will be subject to regular re-assessment to ensure it remains relevant.

ESMA highlights that beyond the activities in the Sustainable Finance Roadmap, it will continue to monitor major EU and international developments and contribute as needed to the various initiatives in the sustainable finance area, including in the EU Platform on Sustainable Finance, IOSCO as well as in relevant workstreams within the NGFS.

Roadmap priorities

The Roadmap identifies three priorities:

• Tackling greenwashing and promoting transparency: ESMA explains that investigating the complex issue of greenwashing, getting to defining its fundamental features and taking coordinated action in multiple sectors to find common solutions across the EU, will be key to safeguarding investors. ESMA observes that, in an ideal scenario, NCAs and ESMA would tackle greenwashing based on a complete and fully applicable legislative regime setting the boundaries of the type of market behaviour and practices that are and are not permissible. However, ESMA identifies that there is now a real need to address greenwashing without delay, even if all the legislative steppingstones are not fully in place yet.

With this in mind, among other actions, ESMA plans to organise case discussions focused on greenwashing issues among NCAs to establish a shared understanding of key concepts (this will include identifying the key features of greenwashing practices, getting to a comprehensive definition of the phenomenon and identifying related examples). ESMA says the discussion will aim to determine how greenwashing differs from other types of mis-selling, what are the channels which may facilitate spreading of greenwashing across the investment value chain and what measures can be taken to promote transparency, what type of marketing communication can be regarded as faithful with respect to the sustainability nature of certain financial products and what are the different types of sustainable products – this being an essential starting point for more advanced supervisory convergence work related to greenwashing.  ESMA will also develop guidance on the Level 2 measures under Article 8 of the Taxonomy Regulation to ensure robust disclosures on companies’ current environmental performance as well as their transition plans to increase the Taxonomy-alignment of their business activities.

• Building NCAs and ESMA’s capacities: ESMA will help build up NCAs’ skill sets, sharing supervisory experiences and agreeing on common supervisory standards to contribute to establishing a common supervisory culture in the field of sustainable finance across the EU.
  
  
• Monitoring, assessing and analysing ESG markets and risks: ESMA’s objective is to identify emerging trends, risks and vulnerabilities that can have a high impact on investor protection and on financial markets stability. ESMA will undertake specific activities such as climate scenario analysis for investment funds, CCP stress testing and the establishment of common methodologies for climate-related risk analysis together with other public bodies.  ESMA identifies that risk monitoring and assessment is hampered by severe issues with both data availability (acknowledging that this is an issue across sectors, but that the situation is particularly challenging for entities facing disclosure requirements in the short to medium term, such as asset managers) and data quality, and this is reflected in their proposed follow-up actions in this area. 

Proposed actions

ESMA seeks to address these three priorities with a list of actions across identified sectors where ESG-related risks and problems are currently perceived as having the highest potential impact on investor protection, orderly markets and financial stability. These are set out in detail in the Annex to the Roadmap together with indicative timelines. A summary of the main actions is provided in the table below, grouped by the sectors identified.

The Sustainable Finance Roadmap 2022-2024 published on 11 February 2022 is available here.