The European Securities and Markets Authority (Esma) has has identified tackling greenwashing and promoting transparency as one of three priorities for its sustainable roadmap over the next three years.
The roadmap, which is the first of its kind for the European regulator, builds upon on its 2020 Strategy on Sustainable Finance.
It takes into account that the European Commission and the co-legislators had “further accelerated the development of EU initiatives on sustainable finance” and that markets for new sustainable financial products emerged and existing markets continued to grow, according to Esma.
The other priorities include bolstering the expertise and capacity of national regulators, and Esma itself, in the sustainable finance field.
This will involve a multi-year training programme and measures to facilitate the active sharing of supervisory experiences among National Competent Authorities (NCAs).
In addition, the roadmap will focus on monitoring, assessing and analysing environmental, social, governance (ESG) markets and risks.
Esma will undertake specific activities such as climate scenario analysis for investment funds, central counterparty (CCP) stress testing and establish common methodologies for climate-related risk analysis together with other public bodies.
The EU securities markets regulator will provide a comprehensive list of actions across investment management, investment services, issuers’ disclosure and governance, benchmarks, credit and ESG ratings, trading and post-trading, and financial innovation.
Greenwashing has been a main area of focus for all regulators with Esma describing the practice as a “complex and multifaceted issue”, with its causes potentially relating to multiple aspects of the functioning of the investment value chain.
Alluding to problems with the sequencing and implementation of sustainable finance rules developed by the EU, Esma stated that, in an ideal scenario, it and national regulators would tackle greenwashing “based on a complete and fully applicable legislative regime setting the boundaries of the type of market behaviour and practices that are and are not permissible” but that there was “a real need to address greenwashing without delay, even if all the legislative steppingstones are not fully in place yet”.
Esma chair Verena Ross said, “Advancing the sustainability agenda is crucial for Esma, particularly as investor preferences shift to environmentally friendly financial products and the EU 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.”
Derek Lawlor, a financial services regulatory partner at law firm Simmons & Simmons based in Ireland, added, “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.”
He said, “ 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).”
©Markets Media Europe 2022
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