In a speech delivered on the 24 November 2023 at the EFAMA Investment Management Forum in Brussels, ESMA Chair, Verena Ross, outlined the key sustainability-related focus points for the European supervisory authority. A summary of some key points for asset managers is set out below.
Enhancing regulatory clarity and consistency for sustainable finance
Ross outlines the importance of "comprehensibility" in empowering investors with the ability to make use of the available information. ESMA's efforts include the simplifying disclosures through language improvements and the introduction of a dashboard, taking into account the results of consumer testing. These updated disclosures will be included in the Final Report on the review of the SFDR Delegated Regulation, which should be published shortly.
Although the simplification may be helpful, updating of existing disclosures will present an additional administrative burden for managers. Helpfully, ESMA stresses the importance of tailoring disclosures for different investor categories, advocating for simpler information for retail investors and more comprehensive details for sophisticated investors.
ESG disclosures and supervisory priorities
ESMA places a significant focus on supervisory activities in the ESG space, designating ESG disclosures as one of its top supervisory priorities. This aims to ensure consistent and effective supervision across the EU and national levels.
Ross outlined the efforts between ESMA and National Competent Authorities (NCAs) to implement common supervisory actions (CSAs) and evaluate market participants' adherence to sustainability-related regulatory provisions. For example, in July, ESMA and various NCAs launched a CSA on sustainability-related disclosures and the integration of sustainability risks in the investment management sector. ESMA is also revising guidelines to incorporate ESG considerations, providing accurate information and advice about sustainable products to investors.
Addressing greenwashing and its complexities
Ross emphasised the need for effective ESG disclosures in order to address the risk of greenwashing. ESMA's Greenwashing Progress report identifies several high-risk areas, such as misleading or vague claims about real-world impact and engagement with investee companies.
In relation to engagement specifically, some funds do not always provide the necessary details on how engagement is carried out while others reference engagement excessively, even where it is not a binding element of their ESG strategy.
This insight is particularly relevant for many fund managers who use engagement as a basis for Article 8 classification under SFDR. Linked to this, the speech notes that ESMA will provide an update on its consultation on the use ESG terms in fund names shortly. The comments in this area re-iterates the fact that mitigating greenwashing is a key priority for the European regulators.
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