New guidance from the European Securities and Markets Authority (ESMA) aims to combat greenwashing by investment funds by seeking more consistent oversight of the fund sector.

In a regulatory brief, ESMA aims to establish common supervisory approaches to investment funds with sustainability features.

The guidance covers fund disclosure and marketing material — including fund names that use sustainability-related terms — and supervision of fund managers’ integration of sustainability risk approaches.

The report also indicated that regulators should consider using enforcement to address misleading disclosures — such as significant discrepancies between what a fund says it invests in and what it actually invests in — and to address firms failing to integrate sustainability risks throughout their organizations.

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ESMA said that harmonizing regulatory oversight in this area should lead to increased transparency for investors and further discourage greenwashing by the investment industry by addressing potential supervisory gaps and shortcomings.