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ESMA gears up to tackle ‘complex and multi-faceted’ greenwashing

The European Securities and Markets Authority (ESMA) has outlined three priorities for its sustainable finance work over the 2022-24 period – with a focus on greenwashing at the forefront, writes our sister publication ESG Clarity.  

The body has published its Sustainable Finance Roadmap 2022-2024 identifying the following priorities:

  1. Tackling greenwashing and promoting transparency;
  2. Building National Competent Authorities’ (NCAs) and ESMA’s capacities in the sustainable finance field; and
  3. Monitoring, assessing and analysing ESG markets and risks.

ESMA said in a statement greenwashing is a “complex and multi-faceted issue” that can take various forms in the market and has different causes but largely detrimental impact. It has made “investigating this issue, defining its fundamental features and addressing it with coordinated action across multiple sectors” as well as “finding common solutions across the EU” as key to safeguarding investors.

Priority number two, NCAs were a key focus of COP26 and ESMA said this growing importance means the market needs to develop skills “beyond the traditional area of focus” to ensure it understands “the supervisory implications of new regulation and of novel market practices in this area”.

ESMA will assist with a multi-year training programme and by sharing the supervisory experiences among NCAs.

Finally for priority three, ESMA said the objective is to identify emerging trends, risks and vulnerabilities that “can have a high impact on investor protection and on financial markets stability”.

ESMA said it will leverage on its data-analysis capabilities to support its, and NCAs’, supervisory work and to “promote a convergent approach among NCAs”. For example, ESMA will undertake specific activities such as climate scenario analysis for investment funds, CCP stress testing and the establishment of common methodologies for climate-related risk analysis alongside other public bodies.

Chair at ESMA Verena Ross commented: “Advancing the sustainability agenda is crucial for ESMA, particularly as investor preferences shift to environmentally friendly financial products and the European Union strives to meet its commitments on tackling climate change.”

“The Roadmap is a milestone for our sustainable finance work, identifying the priority work we will do to ensure that ESMA and national supervisors take ambitious action on priority sustainable finance issues.”

“I am confident that ESMA’s actions will play a key role in contributing to the European Green Deal and in protecting European investors on this journey.”

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Derek Lawlor, a financial services regulatory partner at law firm Simmons & Simmons based in Ireland, said although the roadmap sets out ESMA’s three priorities for its sustainable finance work in the 2022-24 period, the tackling of greenwashing is clearly the most prominent of the three. 

“There is also a degree of connection between the three priorities, in that in order to tackle greenwashing, the supervisory authorities will require a greater understanding of the links between sustainability and finance (priority 2), which understanding should be based on dependable evidence on the functioning of ESG-related financial markets (priority 3). 

“It is interesting to note that the roadmap acknowledges that while greenwashing as a general term has an intuitive meaning, there is no common understanding of what it is, and that the specifics of greenwashing risk will vary between asset management, investment services, corporate disclosures and benchmarks.”

Part of the Bonhill Group.