European Securities and Markets Authority Opinion on the Functioning of the Sustainable Finance Framework

The European Securities and Markets Authority has published an Opinion on the sustainable finance regulatory framework, setting out possible long-term improvements. ESMA acknowledges that while the EU sustainable finance framework is already well developed and includes safeguards against greenwashing, it does believe that, in the longer-term, the framework could further evolve to facilitate investors' access to sustainable investments and support the effective functioning of the sustainable investment value chain. The opinion builds on ESMA's progress report on greenwashing and the joint opinion of the European Supervisory Authorities on the review of the EU Sustainable Finance Disclosure Regulation. The opinion also represents the last component of ESMA's reply to the Commission's request for input related to greenwashing, next to the final report on greenwashing.

ESMA's main recommendations to the European Commission are as follows:

• the EU taxonomy should become the sole, common reference point for the assessment of sustainability and should be embedded in all sustainable finance legislation;
• the EU taxonomy should be completed for all activities that can substantially contribute to environmental sustainability and a social taxonomy developed;
• a definition of transition investments should be incorporated into the framework to provide legal clarity and support the creation of transition-related products;
• all financial products should disclose some minimum basic sustainability information, covering environmental and social characteristics;
• a product categorization system should be introduced catering to sustainability and transition, based on a set of clear eligibility criteria and binding transparency obligations;
• environmental, social and governance data products should be brought into the regulatory perimeter, the consistency of ESG metrics continue to be improved, and the reliability of estimates ensured; and
• consumer and industry testing should be carried out before implementing policy solutions to ensure their feasibility and appropriateness for retail investors.

Return to main website.