ESMA Emphasizes Vigilance Against Greenwashing in Financial Markets

The European Securities and Markets Authority (ESMA) has released a new series of thematic notes aimed at reinforcing the need for vigilance against greenwashing in financial markets. This initiative highlights the importance of transparent environmental, social, and governance (ESG) practices among financial market participants, who are urged to comply with evolving regulatory expectations. As the demand for sustainable investment products grows, the risks associated with misleading claims—known as greenwashing—have also escalated, potentially eroding investor trust and market integrity.

The thematic notes, which were announced in a statement on July 29, 2025, outline clear guidance on how sustainability claims should be communicated within the financial sector. Dr. Jan Saalfrank, an investment funds specialist at Pinsent Masons, commented on the significance of this update, stating, "Greenwashing remains on ESMA's important agenda, with the latest update a clear signal to the market. The thematic note emphasizes ESMA's expectations on the formulation of sustainability claims, offering guidance for market participants."

The first note presents four core principles that financial entities must adhere to when making sustainability-related claims: these claims must be clear, fair, not misleading, and substantiated. This guidance applies to all non-regulatory communications, including marketing materials, websites, and social media posts. The aim is to ensure that investors receive accurate and balanced information regarding the sustainability credentials of financial products.

According to ESMA, misleading claims can manifest in various forms, including 'cherry-picking' data, exaggerating achievements, omitting relevant context, and using vague language that lacks clarity. Furthermore, the authority stresses the necessity of aligning ESG terminology and visual elements—such as labels, awards, and imagery—with the actual sustainability profile of the product or organization being promoted.

The thematic note specifically targets ESG credentials, which include sustainability labels, certifications, and awards that are frequently featured in communications directed at retail investors. While ESMA acknowledges that these credentials can assist investors in identifying sustainable products, it warns that they can also be misused to create a deceptive impression of environmental or social impact. To illustrate its guidance, the note provides examples of both exemplary and poor practices observed within the market. For instance, it commends firms that transparently explain the meaning of a sustainability label and the process of its acquisition. In contrast, it criticizes vague claims like "eco-friendly" or "green" that lack substantiation.

ESMA plans to release additional thematic notes in the coming months, each addressing different facets of sustainability-related communications. These notes are designed to complement existing regulatory disclosures mandated by the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation. Dr. Saalfrank noted, "The straightforward 'dos' and 'don'ts' outlined in the notes provide stakeholders with valuable guidance for framing their ESG communications. With more notes to follow, the market can anticipate further clarifications, which are always welcome in the ESG landscape."

The emphasis on transparency and integrity in sustainable finance comes at a critical time as the investment community grapples with the complexities of ESG compliance. Financial firms are encouraged to adopt these guidelines proactively to mitigate the risks of greenwashing and strengthen investor confidence in sustainable financial products. As the regulatory landscape evolves, adherence to these principles will be crucial for maintaining trust and credibility in the burgeoning field of sustainable finance.

The challenge of greenwashing is not unique to Europe; it resonates globally as investors increasingly seek clarity and assurance regarding the sustainability of their investments. The implications of these regulatory updates extend beyond mere compliance; they represent a significant step toward fostering a culture of accountability and responsible investment practices in the financial sector.