Supervisory Briefing to ensure convergence in the supervision of investment funds with sustainability features and in combating greenwashing
On 31 May 2022 the EU’s securities markets regulator, the European Securities and Markets Authority (ESMA), published its supervisory briefing to ensure convergence in the supervision of investment funds with sustainability features, and in combating greenwashing by investment funds.
Sustainability is a fast-growing area of investment management, so the work aims to provide guidance for convergence on the supervision of sustainability related disclosures, as well as the supervision of how fund managers integrate sustainability risks in their organisational framework and decision-making process. Although the supervisory briefing is non-binding, it provides a useful reference point for market participants and helps to combat greenwashing by establishing common supervisory criteria for national competent authorities (NCAs).
The supervisory briefing covers the verification of the consistency of information in the fund documentation and marketing material, includes presentation of disclosures, fund names, sustainable investment policy and objectives, and investment strategy. For example, the fund documentation should contain a sustainable investment policy and/or objectives, and the fund management should be in-line with that.
The supervisory briefing also focuses on the verification of the compliance with the website and periodic disclosures’ obligations. According to the regulation, fund managers shall publish information on a separate section titled “Sustainability-related disclosures” on the website, and should clearly identify the financial product and remarkably display the environmental or social characteristics, or the sustainable investment objective. Moreover, the supervisory briefing suggests to NCAs to create a checklist based on the information provided in periodic reports.
The additional supervisory action ensures NCAs that all relevant information and data get to the depositaries, which should include all ESG-related investment restrictions in the monitoring of the compliance of the instructions. According to the supervisory briefing, administrative measures may apply in order to combat greenwashing such as in the case for instance, when the SFDR (Regulation 2019/2088 of the European Parliament and of the Council) disclosures are viewed as severely misleading or sustainability risks have not been integrated.