Man painting pollution green

Combating greenwashing is the European Securities and Markets Authority’s (ESMA) top priority in its efforts to support sustainable finance.

Europe’s securities regulator published a report setting out its planned sustainable finance work for the next three years, which highlighted the fight against greenwashing and promoting transparency at the top of its list.

The report noted that the growing demand for ESG investments also heightens the risk of greenwashing, which can harm investors looking to make sustainable investments.

“Investigating this issue, defining its fundamental features and addressing it with coordinated action across multiple sectors, finding common solutions across the EU, will be key to safeguarding investors,” ESMA said.

Additionally, ESMA said it will be stepping up efforts to “identify emerging trends, risks and vulnerabilities that can have a high impact on investor protection and on financial markets stability.”

This work will include engaging in climate scenario analysis for investment funds, stress-testing central counterparties, and helping to develop common methodologies for climate-related risk analysis along with other standards setters.

To that end, the regulator is also planning to build its capacity, and the capacity of local regulators, in sustainable finance.

“Advancing the sustainability agenda is crucial for ESMA, particularly as investor preferences shift to environmentally friendly financial products and the European Union strives to meet its commitments on tackling climate change,” said Verena Ross, chair of ESMA. “I am confident that ESMA’s actions will play a key role in contributing to the European Green Deal and in protecting European investors on this journey.”