Sustainability Accountability: ESMA Adds Guidance to Avoid Greenwashing Risks
16 January 2026
The European Securities and Markets Authority (ESMA) has issued new guidance focused on ESG strategies and presenting its expectations for market participants to “avoid the risk of greenwashing”.
The thematic note from the authority published this week looks at ESG integration and ESG exclusions references the way that these two types of ESG strategies are described and communicated to investors. The document stresses that market participants are “expected to communicate in a clear, fair and not misleading manner” to investors about how they define ESG integration and ESG exclusions and the elements they apply under such strategies. It also sets out four principles for market participants to use to ensure that sustainability claims are made accountably and to steer clear of greenwashing concerns.
Key Client Takeaways:
Clear ESG Integration and Exclusion Definitions Required
- ESMA warns that ESG integration and exclusion strategies are often inconsistently described, creating greenwashing risks. Market participants must clearly explain what these terms mean in their specific context to avoid misleading investors.
Four Principles for Sustainability Claims
- ESMA sets out four expectations for sustainability‑related claims — accurate, accessible, substantiated and up to date — to ensure communications are “clear, fair and not misleading”.
Transparent ESG Practices Needed
- The note includes do’s and don’ts plus examples of good and poor practice. It urges transparency around criteria, thresholds, materiality assessments and whether ESG processes are binding, to prevent vague or inconsistent disclosures.
“ESG integration and ESG exclusions can mean different things to different market participants,” ESMA stated. “Lack of transparency when using these terms poses a notable greenwashing risk to investors. The aim of the note is not to define these strategies, but to call on market participants to be clear about what they mean when referencing them.”
ESMA’s note highlighted that misleading claims can take the form of cherry-picking, exaggeration, omission, vagueness, inconsistency, lack of meaningful comparisons or thresholds, misleading imagery or sounds. It added that sustainability information is “increasingly important to the choices of investors”.
ESG integration strategies generally aimed at improving risk-adjusted returns by factoring in material ESG risks and opportunities, while ESG exclusions strategies tend to focus on avoiding or minimising exposures that are prone to risks and/or at aligning the portfolio with specific values or norms. The document states that “divergent” market practices regarding ESG integration and ESG exclusions are “often not well explained by market participants”, adding that it can create a risk of “claims being misinterpreted and investors being misled in the absence of sufficient transparency”.
ESMA said that market participants should follow four principles to ensure clarity, fairness and to remove greenwashing risks. These principles are that sustainability claims should be accurate, accessible, substantiated and up to date. The authority stressed that these four principles do not create new disclosure requirements but rather “aim to remind market participants about their responsibility to make claims only to the extent that they are clear, fair and not misleading”.
The note also featured a set of ‘do’s’ and ‘don’ts’ for ESG integration and ESG exclusions, as well as three examples of good practices and three of poor practices.
When using the term ‘ESG integration’, ESMA urged market participant to clearly outline what is meant by it the first time it is used in the communication. It also suggests that “plain language” should be used to accurately describe how ESG factors are considered in the portfolio construction process and that “illustrative examples” are used to “clarify abstract terms”. The note stated that the use of ‘ESG integration’ should be avoided as an umbrella term to describe different ESG strategies such as exclusions and best in class.
On ESG integration, ESMA also stressed that market participants should be clear about whether ESG integration is a binding or non-binding aspect of the product’s approach, clarify what level ESG integration is done at and be transparent about any differences in the level of ambition with which ESG integration is done for different asset classes and sectors.
For ESG exclusions, the authority similarly called for plain language on ESG criteria and thresholds used to implement exclusions and clarity on whether ESG exclusions are defined in absolute terms. It additionally urged transparency on whether the ESG exclusions strategy relies on a single or double materiality assessment being clear about the level of impact of the exclusions on the investable universe and/or on the final portfolio composition. The note stated that participants should not claim to have an ESG exclusions strategy if the exclusion rules are “not based on defined criteria and applied consistently”.
This is ESMA’s second thematic note on sustainability-related claims, following the publication of its first in July 2025 which focused on ESG credentials, including labels, ratings and qualifications.
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Last Updated: 16 January 2026