Netherlands Authority for the Financial Markets publishes Guidelines on Sustainability Claims

Sustainability is a key supervisory priority for the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, the “AFM”). In its Strategy 2023 – 2026, the AFM distinguishes a safe financial transition to a sustainable society as one of its three supervisory priorities. The financial sector has an important role to play in the sustainability transition. The AFM supervises that market participants are transparent regarding risk and impact, justify their sustainability claims and assist consumers with financial advice, and that greenwashing is prevented. Compliance with sustainability requirements demands significant effort from market participants. The focus of the AFM’s supervision will accordingly shift from guidance towards compliance.

In this context, the AFM considers it important for financial undertakings (financiële ondernemingen) and pension providers (pensioenuitvoerders) to be transparent about sustainability. Failures of sustainability claims to meet statutory information requirements can have negative consequences. For instance, it can reduce customers’ trust in sustainability claims, leaving them less motivated to make sustainable choices. It can also lead to unfair competition. Financial undertakings that invest sustainably and properly inform their clients about it may be disadvantaged compared to financial undertakings that make sustainable promises and fail to deliver on them or mislead customers through their communication. This could have a negative impact on the sustainability transition and on trust in the financial sector.

Against this background, and after having consulted the financial sector, the AFM has now published its final ‘Guidelines on Sustainability Claims’’ (the “Guidelines”) for financial undertakings and pension providers. With the Guidelines, the AFM aims to contribute to more transparency regarding sustainability claims, allowing clients of financial institutions and members of pension providers to better understand the sustainability aspects of products.

Scope and legal context

The Guidelines do not have the status of “hard” law, but rather serve as a “soft” law instrument by which the AFM provides insight to the sector into how it looks at sustainability in the context of the existing information requirements. Market participants themselves are responsible for compliance.

Sustainability claims by financial institutions must meet the generic requirement under the Dutch Financial Supervision Act (Wet op het financieel toezicht) that information (including advertisements) must be correct, clear and not misleading. The Cross-Border Funds Regulation also stipulates, in respect of fund managers, that all information included in marketing communications is fair, clear and not misleading. Similarly, pension providers must comply with the information requirement standards under the Pensions Act (Pensioenwet), pursuant to which information must be correct, clear and balanced. In the context of the Guidelines, sustainability claims refer to all expressions related to sustainability provided by market participants to describe and promote the entity or its products and services (e.g., in statements, images or labels). The AFM clarifies that sustainability claims can be included in mandatory information (e.g., a prospectus or information required by the Sustainable Finance Disclosure Regulation (“SFDR”)), but also in non-mandatory information, such as marketing and voluntary website information. All such disclosures are covered by the Guidelines. The AFM also stipulates that the concept of sustainability in the Guidelines is a broad concept which is not limited to any definitions from the SFDR, MiFID, the Taxonomy Regulation or other sectoral laws or regulations. Sustainability claims by market participants can therefore, in practice, cover the full breadth of the concept of sustainability.

Principles and examples / good practices

The AFM points out three principles that market participants should adhere to when making sustainability claims. The Guidelines include sixteen examples of sustainability claims that do not meet these principles and five good practices.

(I) Accurate, representative and up to date: This means that market participants:

• ensure that sustainability claims are factually accurate and not contradictory to other information;
• ensure that sustainability claims paint an accurate picture and are representative of the market participant or product; and
• keep sustainability claims up to date (since dated information gives insufficient insight or may create a false perception).

In this context, the AFM gives examples of sustainability claims that are not accurate, representative or up to date, including the example of a non-representative visual sustainability claim where a market participant places a large image of a rainforest on the main page of its website, whereas, at the same time, it invests relatively heavily in palm oil and companies that cut down rainforests for production. In such instance, the visual claim does not match the actual impact of the market participant on rainforests. The fact that the market participant places the image of a rainforest prominently on its main page may give customers the impression that it has sustainability and combating deforestation as its main priority, whereas its actual investments appear to be at odds with this.

(II) Specific and substantiated: In the AFM’s view, a market participant should:

• specify what a sustainability claim means for the market participant or the product; and
• ensure that sustainability claims are substantiated, in the sense that they are backed up by relevant facts and a cogent explanation (if a claim cannot be substantiated, the claim should not be made).

In this respect, in addition to various examples of sustainability claims that are not sufficiently specific or substantiated, the AFM points to a good practice of a market participant that has made a visual overview available on its website of all sustainability ratings related to the market participant. Each rating shows the year of the rating, the scale on which the rating is based and a brief explanation of what the rating entails. A clear link has also been added, allowing readers to easily find more information about the rating. The AFM notes that, in such case, the sustainability ratings are well supported by up-to-date and relevant information. Due to the market participant's attention to helping readers navigate its communication, using visual insight and clear information, readers gain an understanding of what the different ratings mean.

(III) Understandable, appropriate and easy to find: The AFM expects market participants to:

• describe sustainability claims in understandable language (i.e., avoiding the use of difficult terms and explaining complex concepts, including sustainability terminology);
• use appropriate sustainability terms (i.e., keeping in mind the readers’ expectations); and
• ensure that all relevant features related to sustainability claims are easy to find (i.e., making sure that different information carriers are mutually cohesive).

In this respect, the AFM gives examples of sustainability claims that do not meet this principle. Furthermore, the AFM points to the good practice of a market participant that makes a summary of its sustainable investment policy available on its website in the form of a two-page document containing key information. The information in this document is concrete, clear, and relevant. For further in-depth information, readers are referred to a comprehensive sustainable investment policy document. The AFM notes that, in such instance, relevant information is written down in an easy-to-find and accessible way for readers. The concise summary and clear wording make the relevant information more accessible for readers than if they were referred directly to a comprehensive sustainable investment policy document.

Some final remarks

In the Guidelines, the AFM aims to provide financial market participants with the relevant tools (i.e., three principles with examples of good practices and examples where the principles have not been met) to help them comply with existing statutory information requirements when making sustainability claims. Although the Guidelines in itself do not introduce any new statutory obligations, it serves as guidance on the proper handling of existing information requirements. In view of the AFM’s particular attention to sustainability, and transparency in that respect, we therefore recommend financial undertakings and pension providers to assess their sustainability claims and test whether these are aligned with the principles in the Guidelines.