In its latest thematic note, ESMA highlights that ESG integration and ESG exclusions have become the most common claims in retail marketing.
However, these terms are frequently used as umbrella phrases with no standardized meaning. For instance, some funds claim ESG integration while only considering financial risks, whereas others use it as a binding rule for portfolio selection. Similarly, exclusions vary from absolute bans to weak revenue thresholds that allow significant fossil fuel exposure.
ESMA warns that without a plain-language explanation of how these strategies actually change a portfolio, investors cannot accurately judge a product’s sustainability impact.
Combatting non-textual greenwashing:
The regulator is also cracking down on the use of imagery and sounds—such as nature-themed graphics or green logos—that may overshadow the technical reality of an investment. ESMA asserts that these cues can create a sustainability halo around products that are only marginally different from traditional funds.
To prevent this, the note outlines four core principles: all sustainability claims must be accurate, accessible, substantiated, and up-to-date. Under these guidelines, if a fund manager promotes a low-carbon strategy, they must substantiate exactly how their exclusion thresholds outperform standard market benchmarks.
The official warning:
ESMA emphasizes that while integration and exclusions are valid tools, they are often the least ambitious forms of sustainable investing and must be described with extreme precision to avoid being labeled as misleading.
“ESG integration and ESG exclusions can mean different things to different market participants. Lack of transparency when using these terms poses a notable greenwashing risk to investors. This note aims to call on market participants to be clear about what they mean when referencing them, as per the official statement from ESMA.
A roadmap for compliance:
The thematic note serves as an educational framework for national regulators and firms alike, offering a Do’s and Don’ts list for non-regulatory communications.
With this note, ESMA encourages firms to use a layered approach for digital marketing—providing high-level summaries that link directly to detailed methodologies.
Good practice examples include being explicit about whether ESG factors are binding or discretionary, while poor practice includes making sweeping claims like zero exposure to fossil fuels when the underlying benchmark allows for exceptions. The guidance marks a significant shift toward stricter supervision of the marketing materials that drive retail investment choices.
