With its sustainable finance framework, the EU is making sustainability considerations an integral part of its financial policy in order to support the European green deal. All EU bodies are playing a role to achieve this objective and the Commission is liaising with the European Supervisory Authorities. In February, the European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, published its Sustainable Finance Roadmap 2022-2024. In the Roadmap, ESMA presents its priorities in the sustainable finance area for the coming years and a related work plan. We spoke to ESMA colleagues, who told us a bit about the main priorities of the Roadmap.

What is ESMA’s role on sustainable finance?

Recent years have seen a shift in investor preferences towards financial products that incorporate environmental, social, and governance (ESG) factors. This, along with the increasing impact of such factors on the risks, returns and value of investments, has implications for ESMA’s goal of enhancing investor protection and promoting stable and orderly markets. When the founding regulations of the European Supervisory Authorities (ESAs) were reviewed in 2019, ESMA’s mandate on sustainable finance was strengthened – it is now required to take account of sustainable business models and integrate ESG factors in its work.

To reflect these developments, ESMA is actively contributing to the development of the EU’s sustainable finance rulebook and to its consistent application and supervision across the EU. ESMA also carries out risk assessment and market monitoring activities focusing on potential financial stability risks stemming from ESG factors.

What is the purpose of ESMA’s Sustainable Finance Roadmap?

Building on ESMA’s 2020 Strategy on Sustainable Finance, the Roadmap is a practical tool to ensure that ESMA delivers on its wide array of sustainable finance tasks across multiple sectors in a coordinated way. Furthermore, the Roadmap provides stakeholders with transparency when it comes to ESMA’s sustainable finance deliverables and how they are expected to be sequenced over the coming years.

Which priorities does the Roadmap set for ESMA’s sustainable finance work?

The Roadmap identifies three priorities for ESMA’s sustainable finance activities from 2022 to 2024:

1) Tackling greenwashing and promoting transparency

The combination of growing demand for ESG investments and rapidly evolving markets creates room for greenwashing. Greenwashing is a complex and multifaceted issue that takes various forms, has different causes, and can potentially have a detrimental impact on investors looking to make sustainable investments. To safeguard investors, it will be vital to investigate this issue, define its fundamental features and address it with coordinated action across multiple sectors, finding common solutions across the EU.

2) Building national competent authorities’ and ESMA’s capacities

The growing importance of sustainable finance requires national competent authorities and ESMA to further develop skills beyond their traditional areas of focus to understand and address the supervisory implications of new regulation and of novel market practices in this area. It will help build authorities’ and its own capacity on sustainable finance through a multi-year training programme and through facilitating the active sharing of supervisory experiences among authorities. These efforts will also contribute to creating effective and consistent supervision in sustainable finance.

3) Monitoring, assessing and analysing ESG markets and risks

The objective of this third priority is to identify emerging trends, risks and vulnerabilities that can have a high impact on investor protection and on the stability of financial markets. ESMA will use its data-analysis capabilities to support its own as well as national competent authorities’ supervisory work and to promote a convergent approach among authorities. It will undertake specific activities such as climate scenario analysis for investment funds, CCP stress testing and the establishment of common methodologies for climate-related risk analysis together with other EU public bodies.

How will ESMA deliver on these priorities?

To address the three priorities, the Roadmap identifies a comprehensive list of actions that ESMA will carry out between 2022 and 2024. Some actions will span several years while others will be completed within a shorter time period. Equally, some actions will be cross-sectoral while others will be focused on one of the following sectors:

• Investment management
• Investment services
• Issuers’ disclosure and governance
• Benchmarks
• Credit ratings and ESG ratings
• Trading and post-trading
• Financial innovation

Several of the actions in the Roadmap are aligned with, and will help fulfil, the European Commission’s Strategy for Financing the Transition to a Sustainable Economy from 2021.

Read more about ESMA’s main actions for 2022 in each of the sectors mentioned above and access ESMA’s sustainable finance website