Written by: Karim Hammam
The European Securities and Markets Authority (ESMA) has issued two new guidelines directed at investment firms and various financial market participants, aimed at enhancing the clarity of communication regarding the environmental and social benefits of investment products and protecting investors from misleading information.
The new documents aim to regulate claims related to the positive impact of investments and climate transition processes within the investment funds, bonds, and financial standards sectors, ensuring that investors are provided with an accurate and balanced picture of expected benefits.
Standards for Positive Impact Claims
The first guidelines focus on claims that investments achieve positive environmental or social outcomes. The regulatory body noted a variation in how market participants define this impact and the level of ambition associated with it, recommending that companies clarify the specific changes expected from their products, the methods for achieving the stated impact, and the mechanisms for accurately measuring results.
Supporting Climate Transition Paths
The second guidelines address climate transition claims, specifically how investments and financial products contribute to the transition toward a low-emission economy. Given that these claims relate to the future and involve uncertainties, the authority has called on companies to disclose their transition goals, ways to achieve them, and the mechanisms used to evaluate progress, in addition to clarifying relevant assumptions, data, and dependencies.
The documents include practical examples of sound and unsound communication practices, aimed at limiting greenwashing practices and exaggerating the environmental or social benefits of products. The authority emphasized that these guidelines do not impose new regulatory requirements or a specific investment approach, but are based on existing market practices to assist participants in adhering to standards of clarity and integrity.
