ESMA Issues Guidelines To Curb Greenwashing Claims

In its recent efforts to contain greenwashing in the financial markets, the European Securities and Markets Authority (ESMA) has released a new thematic note to provide guidance for issuers and fund managers on how to employ claims related to sustainability. Published on 8 July 2025, this is the first of a series of issues that the EU's financial markets regulator has lined up. It provides market participants with clear guidelines on how they should report sustainability credentials honestly, openly, and not fraudulently that could mislead investors, especially retail investors.

Greenwashing, or an organization's or product's unfounded or overstated claims of sustainability, has become more trendy in recent years due to increased environmental, social, and governance (ESG) investing. In protection from such threats, ESMA's note addresses ESG-themed claims presented in communications with retail investors, namely claims referring to certifications, awards, voluntary frameworks, ratings, and benchmarks.

Warning is that these claims can easily mislead investors. For example, ESMA mentions misuses of labels or ESG awards, which can create the impression of widespread sustainability success but not depth. Similar to being a signatory to a voluntary sustainability initiative or a member of a net zero alliance being paraded in communications without specifying actual commitments or outcomes involved. This produces a skewed picture of the sustainability performance of a firm and can dent investor confidence.

While the note does not bring any new regulatory requirements, it specifies four key principles that should direct issuing claims in relation to sustainability. These are that all such claims should be Accurate, Accessible, Substantiated, and Up to Date. These principles seek to impart lucidity, integrity, and transparency in the manner ESG credentials are articulated with the overall objective of safeguarding investors as well as promoting market integrity.

In line with the policy of truthfulness, ESMA underscores that sustainability statements should portray the actual sustainability picture of a financial instrument or company in a real and not overstated sense. Communication must be clear and balanced, highlighting both the positive and negative points, and refraining from using false language, omissions, cherry-picking, or presenting irrelevant information. Claims must be coherent in various media and documents to prevent misunderstanding or misinterpretation.

To ensure accessibility, ESMA recommends that claims of sustainability be presented in language clear enough for investors to comprehend and detailed enough so as not to be excessive or lacking. The information must be easy to access and presented in a format that is suitable to its audience.

As a policy under substantiation, ESMA insists that all the sustainability claims must be backed up by good facts and solid arguments. It also demands support by proper and fair methodologies, and disclosure of data limitations, assumptions, or metrics utilized. Where there is comparison—e.g., to peers or industry averages—it should be explicit what is being compared and on what grounds.

Lastly, under the principle of timeliness or being in tune with current times, ESMA expects that all sustainability information is kept up to date, and that material status or commitment changes are disclosed without undue delay. This averts companies from making false or outdated claims of past associations or histories.

The thematic note also includes some examples of good and bad practices on ESG credentials. It provides a list of "Do's" and "Don'ts" for businesses that make statements regarding industry programs, labels, awards, and benchmark comparisons. For instance, businesses must explicitly declare what joining a specific industry program will cost—process improvements, additional reporting requirements, or commitment goals. Also, the corporations must refrain from referring to such plans once they ceased their giving and selectively making announcements in order to lend more significance to their sustainability efforts than they truly deserve.

This document is one of a series of initiatives across the EU being pursued by ESMA and other European financial regulators, namely the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA). Working together as the European Supervisory Authorities (ESAs), they have accepted an invitation in 2022 by the European Commission to address greenwashing risks in the financial industry. Their first reports, issued in 2023, had identified the most prominent sources of greenwashing risk in their own industries. Their most recent reports, issued in 2024, described how supervisors have been responding to these concerns and urged more regulatory power and increased supervision to block deceptive ESG disclosure.

By issuing this thematic note, ESMA seeks to underscore the value of transparent, verifiable, and equitable sustainability-linked disclosures which can help to sustain investor confidence and facilitate the movement to a justly sustainable financial system. As investors increasingly embrace ESG investing, it is becoming crystal clear to regulators that truthfulness and accountability in making sustainability claims are not a choice—rather, they are mandated.