EU: how to talk about ESG integration and ESG exclusions according to ESMA anti-greenwashing guidance note

ESMA has published its second anti-greenwashing guidance note for asset managers,  ‘Thematic note on clear, fair & not misleading sustainability-related claims’. The note is designed to promote clarity in sustainability-related communications. It focuses on ESG strategies, and in particular the way references to ESG integration and ESG exclusions are often described and communicated to investors.

The first note focuses on ESG credentials (such as ESG labels or awards, voluntary initiatives or alliances, and comparison to peers).   

Summary of ESG Integration guidance

• Do’s:
  • Define “ESG integration” clearly and in plain language when first used.
  • Explain how ESG factors influence portfolio construction, including whether they are binding, trigger decisions, and their impact on financial analysis and portfolio composition.
  • Specify the level at which ESG integration occurs (e.g., security selection, asset allocation).
  • Be transparent about differences in ambition across asset classes or sectors.
  • Clarify if the approach uses single or double materiality and whether it considers risks only or also opportunities.
• Don’ts:
  • Avoid using “ESG integration” as a catch-all term for other ESG strategies (e.g., exclusions, best-in-class).
  • Don’t make broad entity-level claims without clarifying scope.
  • Don’t claim ESG integration for products with ESG benchmarks unless the strategy truly includes integration elements.
  • Avoid implying superior sustainability based solely on ESG integration unless supported by its depth and impact.
• Examples:
  • Good Practice: Detailed disclosure of ESG integration scope, rationale, limitations, and examples of application (e.g., security selection only, materiality analysis link).
  • Poor Practice: Vague claims like “ESG integrated” without explanation, inconsistent marketing statements, and failure to inform clients about limitations of bespoke ESG policies.

Summary of ESG Exclusions Guidance

• Do’s:
  • Explain the process, ESG criteria, and thresholds in plain language.
  • Clarify if exclusions are absolute or threshold-based and whether thresholds apply to all or some criteria.
  • Be transparent about any materiality assessment (single or double) used in the strategy.
  • Indicate the impact of exclusions on the investable universe and portfolio composition, especially if minimal.
  • Specify whether exclusions follow a firm-wide policy or are tailored to the product’s investment universe.
• Don’ts:
  • Avoid claiming ESG exclusions if rules lack defined criteria or consistent application.
  • Don’t use exclusions to claim superior sustainability unless supported by:
    i) materiality of criteria,
    ii) ambition of thresholds, and
    iii) actual impact on investable universe or portfolio composition.
• Examples:
  • Good Practice: Clear explanation of exclusion criteria (e.g., human rights violations measured via controversy score), transparency about off-benchmark holdings, and limitations of ESG factor assessment.
  • Poor Practice: Overstated claims like “zero exposure” when exclusion criteria allow holdings of fossil fuel developers due to lenient thresholds and weight limits.

Significance of these thematic notes for firms

These notes serve as a reminder of the focus that the regulators have on greenwashing, as well as offering useful and practical examples. 

Both are intended to offer helpful guidance on how EU rules apply in the context of promotional materials. They outline four guiding principles and offer practical do’s and don’ts, illustrated by real-life examples based on observed market practices.

Importantly, whilst the guidance contained in the notes does not introduce new regulatory or reporting requirements, market participants are encouraged to familiarise themselves with the principles in order to avoid greenwashing.  Observance of these notes may require firms to revisit their processes to ensure that the sustainability related claims they make indeed meet regulatory expectations.

These notes form part of broader efforts to manage greenwashing risks and ensure that investors are not misled by ESG claims. Further notes are expected to follow on other topics (as judged necessary), which firms should keep a look out for.

Reminder of ESMA’s four guiding principles when making sustainability-related claims

The guidance notes centre around four guiding principles that should inform and underpin sustainability-related claims:

1. Accurate: Sustainability claims should fairly and accurately represent the entity’s sustainability profile or its products, without exaggeration and consistently across all communications while avoiding falsehoods. Claims should be precise and based on all relevant positive and negative aspects, avoiding cherry picking or vagueness. In addition, ESG terminology and non-textual imagery or sounds must align with the sustainability profile of the entity or product and should not overshadow the other contents.
    
2. Accessible: Sustainability claims should be presented with an appropriate level of detail so as to be understandable. Moreover, claims should not be over-simplistic.  In cases where space is limited, more explanations can be provided through layered, easily accessible content, especially in digital formats.
    
3. Substantiated: Sustainability claims should be backed with clear and credible reasoning, facts and processes. This includes methodologies (including comparisons, thresholds or underlying assumptions) that are fair, proportionate and meaningful. Limitations of information, data and metrics used in a claim should be made available, whilst any comparisons should ideally compare “like with like".
    
4. Up-to-date: Sustainability claims should be based on current information with any material change disclosed in a timely manner. The clear indication of the analysis’ date and perimeter could be useful for this purpose.