ESMA Final Report on Greenwashing

ESMA has published its Final Report on Greenwashing. This much-anticipated publication follows the Progress Report on Greenwashing published in May 2023, which provided a first analysis of the responses to the EC’s Request for input related to greenwashing risks and the supervision of sustainable finance policies from 2022. The Final Report advocates for a risk-based approach as the cornerstone of the supervisory efforts in the context of greenwashing.


On 4 June 2024, the European Securities and Markets Authority (ESMA) jointly published its Final Report on Greenwashing (Final Report), introducing recommendations to improve the supervisory activities of National Competent Authorities (NCAs) and mitigate greenwashing risks. The publication builds on ESMA’s Progress Report on Greenwashing (Progress Report), published in May 2023, and comes in response to the EU Commission’s (EC) mandate from May 2022. As this mandate was issued to all three European Supervisory Authorities (ESAs) but the current publication only concerns ESMA’s findings, this report should be read in conjunction with the final reports issued by the European Banking Authority (EBA) and European Insurance and Occupational Pensions Authority (EIOPA) respectively on this topic.

The purpose of the Final Report is to deliver advice to the EC on greenwashing risks and provide a forward-looking view of how supervision could be gradually enhanced in the future by identifying a series of actions for NCAs, ESMA and the EC to consider across key sectors of the Sustainable Investment Value Chain (SIVC).

Key points

ESMA highlighted the following considerations in its Final Report:

  • The ESAs confirm a common understanding of the concept of greenwashing, which is in line with the Progress Report, including the following notions:
    • that greenwashing can be either intentional or unintentional.
    • that greenwashing can occur in relation to entities that are outside the remit of the EU sustainable finance legislation.
    • that greenwashing can be triggered by third parties, in addition to the entity to which the sustainability communications relate or the entity responsible for the product.
  • ESMA recommends that NCAs continue developing a dedicated risk-based approach to sustainability supervision as part of their monitoring frameworks, keep building their expertise on this topic and rely on their mandate to protect investors from greenwashing, among other intiatives. It provides concrete examples of “good practices” for NCAs on specific points, such as complaint handling, capacity building, conduct of thematic reviews, etc.
  • At the same time, ESMA acknowledges the challenges related to this supervisory exercise when it comes to limited resources and data availability, in addition to certain inconsistencies and ambiguities in the legal framework, as pointed out by several NCAs in their feedback.

    In addition to this, Annex 2 of the Final Report provides a high-level description of the main legal provisions that may be relevant for NCAs when dealing with instances of greenwashing.

Sector-specific guidance

Points that are particularly relevant for the investment management sector include:

  • The results of the Common Supervisory Action (CSA) on sustainability-related disclosures and the integration of sustainability risks in the investment fund sector, which was launched by ESMA in July 2023, are expected to be published by the end of 2024. This two-pronged exercise consisted of questionnaires sent to selected market players on the topics of greenwashing risks and sustainability risks, as communicated by the CSSF last year.
  • Emphasis is put on the relevance of Supervisory Technology (SupTech) tools and Natural Language Processing (NLP) techniques to facilitate the review of sustainability-related disclosures as part of the monitoring process. ESMA will continue to carry out methodological developments on its indicators and SupTech tools to further enhance its monitoring of greenwashing in the funds industry.
  • In order to support NCAs’ readiness to carry out portfolio analysis and to reinforce their efforts to monitor greenwashing risks in the funds industry, ESMA announced that it will prepare a report on the development of an integrated collection of supervisory data and its related empowerments to develop technical standards.

    Beyond the investment management industry, the Final Report also includes sector-specific recommendations for issuers, investment service providers and benchmark administrators.

Actions to be considered

In Annex I of the Final Report, ESMA provides a concrete list of actions to be considered, including explicit guidance for market players. Notable examples of these include the following:

  • Substantiate sustainability-related claims and communicate sustainability information in a manner that is fair, clear and not misleading.
  • Implement monitoring processes and report regularly on progress, where relevant.
  • Adapt governance structures and processes to mitigate greenwashing risks (e.g. committees and guidance).
  • Fulfil due diligence responsibilities on ESG data with the same level of ambition and care as for financial information.
  • Consider high-risk areas identified by the Progress Report.
  • Further integrate ESG risks into risk management systems and controls.

While the market awaits the EC’s endorsement of the final report on the draft RTS, as well as the potential effects of the responses to the consultations on the implementation of the SFDR, the Final Report emphasises the importance of timely and adequate integration of greenwashing risks in your risk management framework, not only from a compliance, but also strategic, perspective.