ESMA Publishes Thematic Notes on Impact and Transition Claims

The European Securities and Markets Authority (ESMA) on 12 October 2026 published two additional thematic notes on sustainability-related claims, one examining positive impact claims made through funds and bonds and the other addressing climate transition claims, drawing on observed market practices across funds, bonds and benchmarks.

The notes offer practical do’s and don’ts for making sustainability claims in non-regulatory communications, illustrated with examples of good and poor practices based on observed market practices. According to ESMA, they aim to ensure that communications are clear, fair and not misleading, thereby reducing the risk of greenwashing. The authority stated that the notes do not create new regulatory requirements and should not be understood as prescribing a particular approach or level of ambition, for example in the context of the ongoing review of the Sustainable Finance Disclosure Regulation (SFDR). The publications are part of a wider ESMA series aimed at promoting greater transparency and consistency in sustainability-related disclosures, and follow previous thematic notes on ESG credentials and ESG strategies.

Both notes set out four principles for sustainability claims: accurate, accessible, substantiated and up to date. Claims can be misleading, the notes state, because of cherry-picking, exaggeration, omission, vagueness, inconsistency, lack of meaningful comparisons or thresholds, or misleading imagery or sounds. The principles apply to non-regulatory oral and written communications, such as marketing material and voluntary reporting, as distinct from regulatory information required by specific disclosure standards, including fund or bond prospectuses, management reports, funds’ key information documents (KIDs) and benchmark statements. Communications aimed at retail investors may rely on layering, with additional substantiation made accessible through links or references. ESMA’s starting point for the principles is the European Supervisory Authorities’ Progress Reports on Greenwashing, which recognised misleading sustainability claims as an investor-protection concern regardless of whether they are specifically covered by the EU sustainable finance rulebook.

Impact Claims

The third note in the series states that market participants understand positive environmental or social impact differently and attach different levels of ambition to their claims, and should communicate clearly on intentionality, additionality and measurability. Intentionality means having the explicit aim to generate positive impact, reflected in clear impact objectives, a theory of change, ex-ante targets or financial incentives such as variable remuneration. A theory of change provides a high-level explanation of how impact will be achieved, including the type of impact targeted and the metrics used to measure it.

The note distinguishes investee impact, the positive environmental or social outcomes generated by a company, project or asset, from investor impact, the result of the investor’s own actions, referred to as the investor contribution. Investor additionality is the extent to which a positive outcome can be attributed to the investor’s contribution because the outcome would not otherwise have occurred, or would have occurred to a lesser degree. ESMA states that demonstrating investor additionality is inherently challenging and remains a developing field, which makes a theory of change key when making impact claims, and that failure to distinguish clearly between investee and investor impact may result in misleading claims. Measurability means tracking progress towards objectives and publishing accurate, up-to-date results; the note distinguishes output indicators, such as proceeds allocated, from outcome indicators, such as emissions avoided, and impact indicators, such as an improvement in soil quality.

Among observed practices, ESMA found that some products communicate a clear, binding impact objective supported by a theory of change, while in other cases objectives are too broad, absent or non-binding. Some funds present portfolio-level metrics derived from investee companies as evidence of investor-level impact, and standard ESG engagement, such as voting on sustainability-related matters at shareholder meetings, is in certain cases presented as impact-generating without clarifying whether it touches upon impact-related matters. For bonds, the note observed unclear alignment with issuer strategy, financed activities or targets that may be immaterial relative to an issuer’s core operations, and post-issuance reporting that is not aligned with pre-issuance commitments, including missing allocation reports.

The don’ts for funds include implying that investor ownership of listed securities is on its own expected to generate impact, and referencing impact-motivated engagement without clarifying how it differs from standard ESG engagement. For use-of-proceeds bonds, issuers should ensure proceeds are allocated to clearly identifiable projects with a verifiable funding link between the issuance and the financed projects; for sustainability-linked bonds, issuers should explain the ambition of their sustainability performance targets and give explanations when those targets are revised. One poor-practice example describes a climate fund stating that “every euro invested leads to a better world” while its only stock-picking criteria were excluding high-emitting companies and requiring half of its holdings to show good ESG practices, and its only binding impact metric was carbon footprint. A good-practice example describes a listed biotech equity fund whose website states prominently: “Investment in this fund does not bring additional social impact beyond the impact created by the biotech companies it holds.”

Climate Transition Claims

The fourth note states that climate transition claims are inherently forward-looking, typically involving commitments about future climate performance that rely on assumptions and external factors such as technological progress, public policy developments, the availability of infrastructure and resources, and future market conditions. As of the first quarter of 2026, 413 UCITS and alternative investment funds (AIFs) used transition or transition-related words, such as improve, progress or net-zero, in their names, representing approximately EUR 230 billion in assets under management; of these, 334 were UCITS funds, compared with 220 identified in the first quarter of 2025.

Clear communication, the note states, covers three elements: the transition ambition, including objectives, targets, metrics and the base value and base year used to measure progress, together with an explanation of how the ambition contributes to EU or global climate objectives through science-based, Paris-aligned scenarios; the implementation strategy and action plan, including material assumptions and dependencies; and the progress achieved, including the process for monitoring and assessment. The note adds that appropriate governance arrangements and remuneration schemes also underpin the credibility of transition claims.

Observed substantiation practices differ. Some funds define their ambition in terms of portfolio-level emissions reductions, others use portfolio construction criteria such as minimum exposure to companies with credible transition plans, and some state their ambition in terms of contribution to real-economy decarbonisation. For benchmarks, transition claims are generally reflected in the methodology, and administrators may apply systematic tilts towards companies displaying stronger transition characteristics beyond the minimum standards applicable to EU Climate Benchmarks. In the bond market, use-of-proceeds issuers generally disclose the projects, assets or activities being financed, while general purpose bond claims are substantiated through the issuer’s broader transition strategy, climate targets and transition plans; in some cases, ESMA observed, the link between the financing instrument and the stated transition ambition is not clearly articulated. The authority also found transparency on progress achieved to be limited, with fewer examples of systematic reporting on whether progress remained on track, the assumptions underpinning reported progress, or the reasons for any deviation from the stated transition trajectory.

The note’s don’ts include presenting portfolio decarbonisation targets in a way that suggests portfolio decarbonisation equates to real-economy emissions reductions, and relying on ESG ratings, scores or proprietary assessments without explaining the underlying methodology. On progress, ESMA calls for regular reporting against previously communicated targets in an easily identifiable manner, timely communication where progress falls below expectations or targets are no longer considered achievable, and active hyperlinks to supporting information. One poor-practice example describes a transition fund reporting that it remains on track to meet its long-term decarbonisation objective without providing quantitative information to substantiate that conclusion.

Both notes state that they were prepared with an educational objective and that other thematic notes will follow, as judged necessary.