ESMA Issues New Guidance on Impact and Climate Transition Claims to Curb Greenwashing

The European Securities and Markets Authority has published new guidance on how investment funds, bond issuers, benchmark administrators and other market participants should communicate claims about positive impact and climate transition. The two thematic notes focus on areas where ESMA has identified inconsistent market practice, including vague impact claims, unclear investor additionality, weak links between transition ambitions and implementation plans, and insufficient reporting on whether stated targets are actually being achieved.

The guidance does not introduce new regulatory requirements. Instead, ESMA is using observed market practices to illustrate how the existing principle that sustainability communications must be clear, fair and not misleading should apply to non-regulatory materials such as marketing communications and voluntary reporting.

 

Impact Claims Need to Explain How a Real Difference Will Be Made

 

For impact products, ESMA says firms should clearly explain the environmental or social problem being addressed, how the investment is expected to generate positive impact and how that impact will be measured. The regulator focuses particularly on three concepts: intentionality, additionality and measurability.

ESMA also draws a clear distinction between investee impact and investor impact. A company or project may itself generate positive environmental or social outcomes, but that does not automatically mean an investor can claim responsibility for those outcomes. Funds claiming investor-level impact should explain what their own capital, engagement or other actions contributed and avoid taking credit for results they did not cause.

 

Portfolio ESG Metrics Are Not Automatically Evidence of Impact

 

ESMA warns against using standard ESG screens, exclusions or portfolio-level indicators as substitutes for evidence of real-world impact. A fund that excludes high-emitting companies, for example, should not describe that alone as positive environmental impact unless it can explain how its strategy is expected to create additional outcomes.

For bonds, ESMA says issuers should demonstrate a clear connection between proceeds, financed activities and the claimed impact. Use-of-proceeds bonds should link capital to identifiable projects, while sustainability-linked bonds should use targets that are material, sufficiently ambitious and relevant to the environmental or social outcome being claimed.

 

Read more: USDA Changes Could Make Rural Clean Energy Grants Harder to Access

 

Climate Transition Claims Need More Than Long-Term Ambition

 

The second thematic note focuses on climate transition claims, which ESMA says are inherently more uncertain because they describe future improvements in the climate performance of companies, assets, activities or financial products. Firms should therefore explain the transition ambition itself, how it will be implemented and how progress will be measured.

Where targets are used, ESMA expects communications to identify metrics, time horizons, base years, baseline values and intermediate milestones. Market participants should also explain assumptions, data limitations and dependencies, including technological development, infrastructure, policy changes and market conditions that could affect whether the transition can actually be delivered.

 

Portfolio Decarbonisation Should Not Be Presented as Real-Economy Emissions Reduction

 

One of ESMA’s clearest warnings concerns portfolio decarbonisation. A reduction in the carbon intensity of an investment portfolio should not automatically be presented as evidence that emissions have fallen in the real economy.

This distinction matters because portfolio emissions can fall through asset sales or changes in portfolio composition without any corresponding reduction in emissions by the underlying companies. Where a product claims to support real-economy decarbonisation, ESMA says reporting should use measures relevant to that objective and explain how changes can be attributed to investee actions rather than portfolio reallocation.

 

Explore OneStop ESG Marketplace: ESG risk & compliance management

 

Transition Funds Are Becoming More Common

 

ESMA found that 413 UCITS and alternative investment funds were using transition-related terms such as “improve”, “progress” or “net-zero” in their names as of the first quarter of 2026, representing around €230 billion in assets under management. Of these, 334 were UCITS funds, compared with 220 identified a year earlier.

The regulator says market approaches vary substantially. Some funds define clear portfolio emissions targets or minimum exposure to companies with credible transition plans, while others rely on proprietary ESG assessments or engagement strategies without sufficiently explaining how those tools support the stated transition objective.

 

Progress Reporting Is a Major Weakness

 

ESMA found fewer examples of market participants systematically reporting whether previously announced transition ambitions remained on track. The regulator wants firms to report regularly against stated targets and milestones, disclose material data limitations and explain delays, methodological changes or corrective action where performance falls short.

Across both thematic notes, ESMA continues to emphasise four principles for sustainability communications: claims should be accurate, accessible, substantiated and up to date. The guidance extends the regulator’s earlier work on ESG credentials and ESG strategies and reflects its wider effort to reduce greenwashing risks as sustainable investment products and transition-focused financing continue to expand.

 

Source: The European Securities and Markets Authority (ESMA)