The European Securities and Markets Authority (ESMA) has published a second thematic note on “clear, fair and not misleading” sustainability-related claims, homing in on how asset managers describe ESG integration and exclusion strategies.
The guidance forms part of ESMA’s broader effort to tackle greenwashing in financial services and follows its first thematic note on ESG credentials published last year.
“Misleading claims can in particular take the form of cherry-picking, exaggeration, omission, vagueness, inconsistency, lack of meaningful comparisons or thresholds, misleading imagery or sounds,” the note stated.
The guidance applies to non-regulatory communications and is intended to complement, rather than replace, existing disclosure requirements.
It comes against the backdrop of the European Commission’s final proposal to revise the Sustainable Finance Disclosure Regulation (SFDR), published last November.
Integration and exclusions
“ESG integration and ESG exclusions can mean different things to different market participants. The lack of transparency when using these terms poses a notable risk of greenwashing to investors. The aim of the note is not to define these strategies, but to call on market participants to be clear about what they mean when referencing them,” the note said.
As with ESMA’s first thematic note, the regulator sets out practical dos and don’ts for sustainability claims, illustrated with examples of good and poor practice drawn from observed market behaviour.
ESMA said firms making sustainability-related claims – such as describing a product as “green” or “ESG friendly” – should adhere to four principles: claims must be accurate, accessible, substantiated and up to date.
On ESG integration, the guidance noted that managers should explain whether integration is binding or non-binding, where it sits within the investment process and whether it can lead to concrete portfolio action, rather than relying on a label alone.
On exclusions, ESMA said investors should be able to see precisely what is excluded and how ambitious the screening is. This includes clear criteria and thresholds, whether screens are based on a materiality assessment, and whether exclusions have a meaningful impact on the resulting portfolio.
In a 2024 report on greenwashing, ESMA said supervision of sustainability-related claims had become a priority for national supervisors, but warned of constraints on resources, expertise and access to high-quality data.
Last year, the regulator also introduced rules requiring funds using language linked to six themes – transition, environment, social, governance, impact and sustainability – to invest at least 80% of their assets in line with SFDR. The measures prompted hundreds of ESG funds to change their names.
Meanwhile, progress on the European Commission’s flagship anti-greenwashing initiative in the corporate sector has stalled.
Negotiations on the proposed Green Claims Directive broke down last year, with the Commission saying it would withdraw the proposal if the Council did not drop an amendment to widen its scope.
