ESMA Issues Guidance On Clear, Fair Climate Transition Claims To Combat Greenwashing

Key Takeaways

• ESMA's fourth thematic note sets out expectations for how issuers, fund managers, and benchmark administrators should communicate climate transition claims, emphasizing accuracy, accessibility, substantiation, and timely progress reporting.
• While not creating new binding rules, the note signals supervisory focus areas and provides concrete do's/don'ts and examples that compliance teams should use to benchmark existing disclosures and marketing materials against regulatory expectations.

Deep Dive

This thematic note does not introduce new legal obligations but clarifies ESMA's expectations regarding the application of the "clear, fair, and not misleading" principle to forward-looking climate transition claims made by issuers, asset managers, benchmark administrators, and investment service providers. Given that ESMA notes a near-doubling in transition-labelled UCITS funds since 2025 (now representing roughly EUR 230 billion in AUM), this is a clear indicator that transition claims are a current supervisory priority and likely subject of future greenwashing enforcement or thematic reviews.

The note structures expectations around four principles—accuracy, accessibility, substantiation, and currency of information—and then applies these specifically to transition claims across three dimensions: (i) clarity of the transition ambition (targets, baselines, science-based pathways), (ii) adequacy of the implementation strategy/action plan (how holdings, exclusions, engagement, or financed activities support the ambition), and (iii) transparency on progress achieved against previously stated milestones. ESMA explicitly flags that progress reporting is currently the weakest area across market practice, with few participants systematically disclosing whether they remain on track or explaining deviations.

No formal compliance deadline is attached, as this is a non-binding thematic/educational note; however, firms should treat it as an immediate benchmark for current and upcoming marketing material, prospectuses, KIDs, and benchmark statements referencing transition, net-zero, or decarbonization objectives. ESMA's publication of detailed "good practice" vs. "poor practice" examples strongly suggests these will inform future supervisory convergence work, national competent authority (NCA) reviews, and potential greenwashing enforcement actions under SFDR, Taxonomy, Benchmarks Regulation, and MiFID/UCITS marketing rules.

Compliance teams should: (1) conduct a gap analysis of all transition-related claims (fund names, marketing materials, bond frameworks, benchmark methodologies) against the four principles and three transition-specific dimensions; (2) ensure targets include clear baselines, time horizons, and metrics with meaning/scope explained; (3) strengthen governance and periodic progress-reporting processes, particularly around deviation disclosure; (4) review reliance on third-party ESG ratings/second-party opinions to ensure methodology and scope are adequately disclosed; and (5) flag use-of-proceeds bond frameworks and proprietary "transition leader" classifications for enhanced documentation. Failure to align could expose firms to greenwashing-related regulatory scrutiny, reputational risk, and potential mis-selling claims, particularly as NCAs increasingly use ESMA thematic notes as supervisory reference points.

Source: European Securities and Markets Authority