EU markets regulator the European Securities and Markets Authority (ESMA) announced today the release of its new Sustainable Finance Roadmap, setting out its priority areas for action and implementation deliverables to address the rapidly emerging and evolving sustainable finance market over the next three years.

As major global economies look to transition to a low-carbon and sustainable economy, a major role has emerged for financial markets to promote and support the massive capital flows and investments necessary to facilitate this change. The sustainable finance market has grown and evolved rapidly, as investors and financiers increasingly channel capital to participate in the opportunities created by these disruptive forces and new investment products become available, challenging regulators to fulfill their roles of protecting investors and maintaining market stability.

Verena Ross, Chair, said:

“Advancing the sustainability agenda is crucial for ESMA, particularly as investor preferences shift to environmentally friendly financial products and the European Union strives to meet its commitments on tackling climate change.”

One of the key challenges for regulators, and a top priority area for ESMA’s new roadmap, is addressing the risk of greenwashing, referring to situations in which the claims made regarding the sustainability profile of an issuer or a financial instrument are misleading or misrepresented. ESMA notes that greenwashing can either be intentional or unintentional as a result of regulatory differences or poor data quality.  The new roadmap outlines ESMA’s strategy to investigate, better define, address and help find common EU-wide solutions for greenwashing.

Other top priority areas in the new roadmap include building capacities in sustainable finance for ESMA and for national competent authorities (national-level regulatory authorities, or NCAs), and monitoring, assessing and analysing ESG markets and risks. Efforts here will include instituting sustainable finance training programs for ESMA and NCA staff, developing climate scenario analysis and stress testing, along with enhanced common risk analysis methodologies.

The roadmap sets out a broad range of action areas aimed at addressing its key defined priorities, ranging from reviewing SFDR disclosure requirements, implementing requirements for the design of ESG investment products and contributing to the development of sustainability reporting standards for issuers to improving the comparability and reliability of ESG ratings and monitoring carbon markets.

Ross added:

“The Roadmap is a milestone for our sustainable finance work, identifying the priority work we will do to ensure that ESMA and national supervisors take ambitious action on priority sustainable finance issues.”

Click here to view ESMA’s Sustainable Finance Roadmap.