EU: ESMA’s Statement on expected sustainability disclosures in prospectuses

On 11 July 2023, the European Securities and Markets Authority (ESMA) published a Public Statement on the level of sustainable disclosure expected to be included in prospectuses drawn up in compliance with the EU Prospectus Regulation (EU PR).

The Statement is in part a recognition that legislative proposals for specific ESG disclosure in prospectuses, such as those included in the proposed EU Listing Act, will take time to come into effect. In the meantime, this Statement has been published to promote coordinated action by EU national competent authorities (NCAs) – as well as to ensure issuers and advisers understand expectations – in relation to sustainability-related disclosures which should be included in prospectuses under the existing EU PR.

The necessary information test

ESMA reminds issuers and advisers of the necessary information test under Article 6 of the EU PR and communicates its expectation that material sustainability-related disclosure should be included in equity and debt prospectuses despite the lack of specific references to sustainability-related matters in the disclosure annexes set out in the current level 2 legislation.

ESMA acknowledges that the type of sustainability-related information required to be included in a prospectus is a fact-dependent assessment, noting that the circumstances of the issuer and the type of securities in question are key to this determination.

Risk factors

ESMA includes specific recommendations for issuers, including communicating its view that sustainability-related disclaimers should not be used to excuse non-performance of matters over which the issuer has control. ESMA gives the example of a disclaimer included in a prospectus stating that the proceeds of the offering may be invested contrary to the criteria for project selection set out in the prospectus. ESMA’s view is that this is a factor over which the issuer has control, and its inclusion is not appropriate.

ESMA’s expectations for equity prospectuses

In relation to equity prospectuses, ESMA notes that, to the extent sustainability-related disclosures published in an issuer’s non-financial reporting under the Non-Financial Reporting Directive (NFRD) and future Corporate Sustainability Reporting Directive (CSRD) are material, they should be included in an equity prospectus.

ESMA’s expectations for ESG bonds

ESMA also sets out its expectations in relation to debt securities advertised as taking into account specific ESG components or pursuing ESG objectives, such as use of proceeds bonds and sustainability-linked bonds (SLBs). These expectations are then mapped to the existing disclosure requirements under the disclosure annexes of the EU PR in a table at the end of the Statement.

For use of proceeds bonds, ESMA expects disclosure about the use and management of the proceeds and information enabling investors to assess the sustainability ambition underpinning the process for project evaluation and selection. To this end, ESMA suggests that this could be satisfied by including a summary of the material information from such issuer’s green bond framework.

For SLBs, the expectation is that information about the key performance indicators (KPIs), the sustainability performance targets (SPTs) and information enabling investors to assess consistency of the KPIs and related SPTs with any relevant sector-specific science-based targets and the issuer’s sustainability strategy are disclosed in the prospectus.

For both use of proceeds bonds and SLBs, ESMA recommends issuers disclose whether they intend to provide post-issuance information in their prospectus, including what information will be reported and where it can be obtained. For this, ESMA notes that an issuer could include a hyperlink to the website where investors can access such post-issuance information.

EU PR Advertisements Regime

Finally, ESMA and the NCAs note they have observed some issuers including sustainability-related information in advertisements which is not then included in their prospectus. They highlight that if such disclosure is material, it must be disclosed in the prospectus and note the requirement that information contained in advertisements must be consistent with the information in the prospectus.

Next steps

ESMA and the NCAs will continue to monitor the market to determine whether this guidance should be modified, for instance, in cases where new products are introduced to the market or there are changes in the legislation.

As market practice evolves, this Statement is a timely reminder to issuers and their advisers of the points to be considered when drafting disclosure under the EU PR. 

As a practical matter, we can expect NCAs to refer to this Statement when reviewing prospectuses and to challenge an issuer’s disclosure where they consider it does not meet the expectations set out in the Statement. 

In fact, the Federal Financial Supervisory Authority in Germany (BaFin) released a statement on 12 July 2023 welcoming ESMA’s paper, commenting that it would enable BaFin to better pursue its sustainable finance strategy and confirming that the points raised in it will be considered by BaFin when reviewing prospectuses.