As part of the ongoing fight against greenwashing, the European Securities and Markets Authority (ESMA) has issued new guidance to investment industry firms on avoiding misleading sustainability disclosures.
In a guidance note Wednesday, the regulator highlights the need to clarify references to ESG integration and ESG exclusion strategies, which are often cited in disclosures to retail investors, but aren’t always clearly defined.
“… these strategies and can mean different things to different market participants and imply different levels of ambition,” the guidance noted. “For example, sometimes ESG integration is used as an umbrella term for other ESG strategies.”
Given the ambiguity surrounding these terms, the regulators are concerned that their use can be misleading to investors.
“Lack of transparency when using these terms poses a notable greenwashing risk to investors,” ESMA said.
Given the complexity of sustainability-related information, there’s always a risk that these kinds of disclosures are misunderstood, and that investors are misled — even if there’s no intent to mislead — the guidance noted.
The regulator is calling on industry firms to ensure that they’re clear with investors when they make references to ESG integration and exclusion strategies — and to make sure that these disclosures are fair, and not misleading.
In the guidance, ESMA spells out principles that industry firms should follow when crafting these kinds of disclosures. The principles don’t create new regulatory requirements, but aim to provide a framework for firms to ensure that their disclosures are accurate and not misleading.
The guidance also sets out examples of “good” and “bad” practices when using these terms.