The European Securities and Markets Authority, the EU’s securities markets regulator, is committed to contributing to a more sustainable financial system, as part of the European Green Deal and global efforts to deliver on the United Nations’ COP26 objectives on combatting climate change.
European financial markets are at a point of change: investor preferences are shifting towards financial products that incorporate environmental factors. Moreover, environmental factors are increasingly affecting the risks, returns and value of investments. Considering these challenges, ESMA has a key role in helping investors better understand the impact of environmental, social and governance (ESG) factors on their investments and how an investment contributes to a sustainable future. To support this work, ESMA published its Strategy on Sustainable Finance , in February 2020, setting out concrete steps to integrate ESG factors across all areas of its activity.
ESMA actively contributes to the development of the sustainable finance rulebook and to its consistent application and supervision 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.
ESMA’s support for international cooperation
ESMA believes that international cooperation is key to ensuring that consistent measures are taken to protect investors and secure financial stability as the demand for sustainability-related financial products increases. In this regard, ESMA supports, and participates in the work of IOSCO and its Sustainable Finance Task Force, as well as the relevant activities of the Network for Greening the Financial System and the Financial Stability Board.
Building an internationally comparable set of rules and principles that are applicable across the entire sustainable investment value chain is essential to address the global challenges facing financial markets due to climate change.
ESMA’s sector-specific contributions to sustainable finance
ESMA’s key contributions are summarised below:
- Investment Management – with the EBA and EIOPA, developed disclosure requirements aimed at promoting transparency in the field of sustainable investing and at addressing greenwashing risk.
- Next: ESMA will assist National Competent Authorities (NCAs) in being effective and consistent in their supervision of investment managers issuing products with sustainability characteristics and objectives.
- Issuers – provided advice to the European Commission on the content and methodology for the sustainability indicators pursuant to Article 8 of the Taxonomy Regulation.
- Next: ESMA will actively contribute to the development of sustainability reporting standards and foster common supervisory approaches in this area.
- Benchmarks – issued Q&As on EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and on sustainability disclosures for benchmarks in general.
- Next: ESMA will promote effective and consistent supervision across NCAs in relation to climate benchmarks and to the application of sustainability disclosures requirements for benchmarks.
- Credit rating agencies (CRAs) – issued technical advice on sustainability considerations in the credit rating market as well as guidelines on disclosure.
- Next: ESMA will assess the way CRAs incorporate ESG factors in their methodologies for credit ratings and outlooks and how CRAs ensure the robustness of their methodologies.
- Investment firms and investment funds – provided technical advice to the European Commission on the integration of sustainability risks and factors in the internal processes and risk management of these entities.
- Next: ESMA will review the suitability and product governance guidelines, to incorporate sustainability factors.
- ESG risk assessment and market monitoring activities – conducts monitoring and reports on a bi-annual basis in its Trends, Risks and Vulnerabilities report.
- Next: ESMA will continue monitoring and assessing ESG-related market developments and risks and work on further integrating climate risks, for example in its stress testing framework.
- EU Green Bond Standard – responded to the European Commission’s targeted consultation on the establishment of the EU Green Bond Standard (GBS)
- Next: ESMA will prepare for possible supervisory responsibilities arising from the EU GBS legislative proposal