Regulators are ramping up their focus on environmental, social, and governance (ESG) factors, demonstrating that sustainability isn’t just a concern for financial services industry firms.
The European Securities and Markets Authority (ESMA) published its sustainable finance strategy, which sets out how the regulator will build ESG considerations into its work.
With investor demand for ESG products on the rise and sustainability factors increasingly affecting the risks and returns of investments, the regulator stated, “This changing environment has implications for ESMA’s mission to enhance investor protection and promote stable and orderly financial markets.”
To address these developments, the ESMA said that will incorporate green bonds, ESG investing and emissions trading in its risk surveillance efforts. The organization also intends to analyze financial risks from climate change, reform disclosure obligations and pursue convergence in oversight of ESG factors.
ESMA’s supervisory convergence efforts will “focus on mitigating the risk of greenwashing, preventing mis-selling practices, and fostering transparency and reliability” in corporate reporting, it said.
“The financial markets are at a point of change with investor preferences shifting toward green and socially responsible products, and with sustainability factors increasingly affecting the risks, returns and value of investments,” said ESMA chair Steven Maijoor. “ESMA, with its overview of the entire investment chain, is in a unique position to support the growth of sustainable finance while contributing to investor protection and orderly and stable financial markets.”