ESMA fight against greenwashing in new sustainable finance roadmap

ESMA is actively contributing to the development of the sustainable finance rulebook and to its consistent application and supervision by taking the necessary measures to promote investor protection across the EU. ESMA also engages in risk assessment and market monitoring activities focusing on potential financial stability risks stemming from ESG factors.

Building on ESMA’s 2020 Strategy on Sustainable Finance, the Roadmap sets out ESMA’s deliverables on sustainable finance and how they will be implemented over the next three years. The Roadmap will serve as a practical tool to ensure that ESMA delivers on a wide array of sustainable finance tasks across several sectors in a coordinated way.

Verena Ross, chair of the ESMA, said: “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 financial 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.”

The Roadmap sets three priorities for ESMA’s sustainable finance activities in the period from 2022 to 2024.

Tackling greenwashing and promoting transparency: the combination of growing demand for ESG investments and rapidly evolving markets creates room for greenwashing. Greenwashing is a complex and multifaceted issue that takes various forms, has different causes, and has the potential to detrimentally impact investors looking to make sustainable investments. Investigating this issue, defining its fundamental features and addressing it with coordinated action across multiple sectors, finding common solutions across the EU, will be key to safeguarding investors;

Building NCAs’ and ESMA’s capacities: the growing importance of sustainable finance requires NCAs and ESMA to further develop skills beyond their traditional areas of focus to understand and address the supervisory implications of new regulation and of novel market practices in this area. ESMA will help build its, and NCAs’, capacity on sustainable finance through a multi-year training program and through facilitating the active sharing of supervisory experiences among NCAs. These efforts will also contribute to creating effective and consistent supervision in the area of sustainable finance;

Monitoring, assessing and analysing ESG markets and risks: 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 will leverage its data-analysis capabilities to support its, and NCAs’, supervisory work and to promote a convergent approach among NCAs. 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 together with other public bodies.

ESMA will address its three priorities with a comprehensive list of actions across the following sectors: investment management, investment services, issuers’ disclosure and governance, benchmarks, credit and ESG ratings, trading and post-trading, and financial innovation. Several of these actions will also contribute to fulfilling the European Commission’s 2021 Renewed Sustainable Finance Strategy.

ESMA has already embarked on the first Roadmap activities to ensure it can deliver on its ambitious plans. It will shortly launch a call for stakeholder candidates to join a new Consultative Working Group supporting ESMA’s Coordination Network on Sustainability.

ESMA will keep the Roadmap, including the identified priorities and the sectors of focus, under review during the entire implementation period of 2022 to 2024. This will ensure that it continues to address the most significant challenges related to ESMA’s sustainable finance mandate, as this important field continues to evolve.

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