Wind turbines and solar panels are now generating almost enough electricity to power every home in China. “The objective is to ensure that investors are protected against unsubstantiated or exaggerated sustainability claims,” Verena Ross, the chair of ESMA, said in a statement on Friday. If adopted, the rules also would give national supervisors and asset managers “clear and measurable criteria to assess names of funds including ESG or sustainability-related terms.”
The proposed tightening comes just days after Europe’s three main regulators launched a joint review to determine how much greenwashing is going on in the financial industry. That follows years of unfettered growth in products claiming to pursue environmental, social and governance goals.
Read More: EU’s Financial Watchdogs Launch Joint Review of Greenwashing
The probe coincides with a wave of ESG fund reclassifications as asset managers react to clarifications to the EU’s anti-greenwash rulebook, the Sustainable Finance Disclosure Regulation. Hundreds of funds purporting to be green may be cut as fund managers reassess product classifications.
ESMA said on Friday that it will consider feedback on its draft guidelines through Feb. 20. These include:
- a quantitative threshold of 80% for the use of ESG-related words
- application of minimum safeguards to all investments for funds using such terms (exclusion criteria)
- additional considerations for specific types of funds, e.g. index and impact funds
The proposals are expected to apply three months after they are finalized and published on ESMA’s website, the authority said. Funds started prior to that date would have six months to comply.