The European Securities and Markets Authority (ESMA), the European Union’s markets regulator, has released a comprehensive new thematic note designed to help market participants navigate the complex landscape of sustainability-related claims. The publication focuses specifically on guarding against greenwashing risks in funds and bonds, with a sharp emphasis on positive impact and climate transition-related marketing and reporting.
This latest regulatory release forms an integral part of an ongoing series of thematic notes launched by ESMA last year. The initiative is intended to guide issuers and fund managers on how to communicate their environmental, social, and governance (ESG) credentials transparently and accurately. The first note in the series, published in July 2025, concentrated heavily on references to baseline ESG credentials, including qualifications, labels, ratings, and certificates. This was followed by a second series of publications in early 2026 that homed in on ESG integration and ESG exclusion funds.
While these thematic notes do not establish entirely new regulatory obligations or legal duties on their own, they serve a vital purpose in the regulatory ecosystem. They are meticulously designed to support market participants’ practical understanding of existing expectations, ensuring that all communications regarding sustainability are clear, fair, and completely free from misleading statements. Across all publications in the series, ESMA anchors its expectations in four foundational principles that market participants must follow when making sustainability claims: claims must be Accurate, Accessible, Substantiated, and Up to Date.
The newly released note turns its analytical lens toward positive impact claims, an area where regulatory observations have uncovered considerable confusion among investors and financial institutions alike. According to ESMA, observed market practices indicate a frequent blurring of lines between investor impact and investee impact. Furthermore, the regulator noted that many claims are currently being made without a clear, logical rationale explaining how an investment strategy actually contributes to achieving a tangible positive impact. Other problematic practices include claims that lack sufficient empirical substantiation. ESMA pointed out that market participants frequently understand positive environmental or social impacts in vastly different ways, attaching varying levels of ambition to their claims without standardized baselines.
To remedy these shortcomings, ESMA strongly encourages providers of funds and bonds to clearly explain the specific differences they expect to make through their investments and to outline precisely how they aim to generate a positive impact. Financial institutions are advised to give careful consideration to core concepts such as intentionality—meaning the explicit aim to generate a positive impact—and additionality. ESMA specifically warned that failing to distinguish clearly between the impact generated by the investee company versus the impact driven by the investor can easily result in misleading claims. Furthermore, market participants are urged to articulate how they will measure their results by deploying key performance indicators centered on outputs, outcomes, or actual impact.
Turning its attention to climate transition claims, ESMA highlighted that these statements possess a fundamentally different character than traditional ESG claims. Climate transition claims are typically forward-looking by nature, often relating to the gradual improvement of the climate performance of companies, assets, or activities. This stands in stark contrast to sustainability claims that are based purely on current environmental characteristics. This forward-looking orientation creates an inherent degree of uncertainty and introduces potential requirements for future adjustments. Because transition claims rely heavily on underlying assumptions and external factors that naturally evolve over time—such as ongoing technological progress and shifting public policy developments—they require rigorous transparency.
To address these challenges, ESMA underscored the absolute necessity for clear communication regarding the specific transition ambition being pursued. This includes detailing concrete objectives, targets, and metrics, as well as clarifying the extent to which the stated ambition contributes to headline climate objectives at both the European Union and global levels. Additionally, market participants must provide a robust implementation strategy and a detailed action plan to substantiate their transition ambition, alongside transparent reporting on the actual progress achieved toward those goals over time.
To assist financial institutions in translating these supervisory expectations into everyday practice, ESMA’s publications incorporate a series of practical "Do’s" and "Don’ts," accompanied by concrete examples of both good and poor market practices.
When dealing with fund and bond impact claims, for instance, ESMA’s guidance directs market participants to clearly identify the specific environmental or social problems they are targeting, while explaining how the intended impact will be attained and measured. Firms are instructed to be unambiguous about their level of ambition by explicitly referencing intentionality, additionality, and measurability. Conversely, market participants are warned to avoid relying on exclusion-based screening or ESG risk-focused metrics as convenient substitutes for genuine impact-related criteria. They are also cautioned against labeling products or underlying investments as "impact-driven" solely on the basis of their asset class or sector.
For climate transition claims, the regulatory guidance outlines specific behavioral benchmarks. The recommended "Do’s" include comprehensively explaining the transition ambition and the intended transition outcome—such as reducing portfolio emissions or achieving true real-economy decarbonization. Market participants are also expected to clearly describe the science-based scenarios, decarbonization pathways, or other credible frameworks that underpin their stated ambition. On the other side of the ledger, the identified "Don’ts" advise against relying solely on broad, aspirational statements that lack substance. Firms must avoid using metrics or alignment claims without sufficiently explaining their meaning, scope, and limitations. Furthermore, ESMA explicitly cautioned against presenting portfolio decarbonization targets in a manner that falsely suggests that simply rebalancing a portfolio equates to tangible emissions reductions in the real economy.
Market participants and interested stakeholders can access ESMA’s complete new thematic notes directly through the regulator’s official communications channels.
