In furthering its objective of well-regulated sustainable finance markets, the European Securities and Markets Authority (ESMA) recently issued a new Thematic Note on fund and bond greenwashing. The note covers sustainability claims by funds and bonds and provides best practices for each. The guidance document also notes that funds and bonds share some shortcomings. The ESMA observes that current market practices need improvement and alignment:
“Some products communicate a clear, binding impact objective supported by a theory of change describing the challenges addressed and how impacts are measured. In other cases, objectives are too broad (e.g. promoting UN SDGs), absent or non-binding and the theory of change can be vague or missing. Some products set out impact-related asset selection criteria. Others use ESG criteria instead of impact criteria or select investments that avoid harm rather than generate positive impact.”
The Thematic Note provides practical do’s and dont’s to help avoid greenwashing. Much of the guidance boils down to specificity in claims. This includes clear messaging around the types of impacts generated and how those funds/bonds measure those impacts through KPIs. The ESMA also provides thirteen practical examples of how to apply the guidance. These include examples modeling good practices and examples illustrating where improvements can be made.
Market regulators in the EU have been on a long journey to reduce greenwashing in their financial markets. Some efforts are working better than others. While we wait on SFDR 2.0 and taxonomy changes, practical guidance like that in this recent Thematic Note helps guide market practices.
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