ESMA publishes two guidelines on environmental and climate claims — Cyprus Mail

The European Securities and Markets Authority (ESMA) has published two new guidelines for investment firms and other financial market participants. They are intended to help communicate the environmental and social benefits of financial products more clearly and avoid misleading investors.

As Cyprus Mail reports, the documents concern claims about the positive impact of investments and climate transition in the areas of investment funds, bonds and financial benchmarks.

Positive impact claims

The first guideline examines claims that investments deliver positive environmental or social outcomes. ESMA drew attention to differences in how market participants define such impact and the level of ambition they attach to their claims.

The regulator recommends that companies clearly explain what specific changes they expect from their products, how they intend to achieve the stated impact and how they will measure the results. The aim is to ensure that investors receive clear and balanced information about the benefits being claimed.

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Climate transition

The second guideline is dedicated to climate transition claims — how investments or financial products support the move towards an economy with lower carbon emissions. Such claims often concern the future and involve uncertainty, as their implementation may depend on future actions, assumptions and factors beyond a company’s control.

ESMA called on market participants to explain their transition objectives, the ways of achieving them, as well as mechanisms for assessing and disclosing progress. They must also disclose relevant assumptions, limitations of available data and dependencies that may affect the achievement of the objectives.

Both documents contain examples of good and poor practice for communications that are not part of formal regulatory disclosures. According to the regulator, this should promote clear, fair and non-misleading communication and reduce the risk of greenwashing — overstating or inaccurately presenting a product’s environmental or social benefits.

ESMA stressed that the guidelines do not establish new regulatory requirements and do not prescribe a specific investment approach or level of ambition. The documents are based on practices observed by the regulator in the market and are intended to help participants understand existing expectations regarding the fairness and clarity of communications.