ESMA publishes its report on marketing requirements under MiFID II – another reminder of the regulator’s focus on greenwashing

What does this relate to?

On 27 May 2024, ESMA published its final report on the 2023 Common Supervisory Action and Mystery Shopping Exercise. Together with National Competent Authorities (NCAs), ESMA investigated the compliance of investment firms with MiFID II disclosure requirements as applicable to marketing communications, including advertisements. This process included a review of specific examples of such marketing communications. The report shows the findings of this exercise and sets out the authorities’ next steps as well as areas for improvement more generally.

General findings

Overall, the report deemed that firms are compliant and have adequate procedures in place to observe the requirements under MiFID II. Some shortcomings were identified, which concerned the need to ensure that marketing materials are identified as such, that risk and benefit information is presented in a balanced manner and that risk warnings are demonstrated prominently. 

Focus on sustainability statements

ESMA had greater concerns in respect of sustainability claims made in marketing communications. One such concern was that sustainability claims, which fall within the scope of MiFID II, must be fair, clear and not misleading.

In particular, ESMA found such examples problematic, which did not corroborate ESG-related claims with evidence and which did not display a balanced overview of the products’ other features. For instance, where references to ESG ratings are made, information must be provided to allow the client to understand the meaning of such a rating, or where a portfolio contains a mixture of sustainable and non-sustainable financial instruments or services, excessive emphasis should not be placed on the former. 

ESMA stressed the importance of potential investors having an accurate understanding of which instruments are ESG-oriented when making their decision to invest. 

Senior manager responsibility

Another concern highlighted by the NCAs and acknowledged by ESMA, was the importance of appropriate control functions and senior management involvement in the internal processes and procedures related to the development, design and oversight of marketing communications, including advertisements, when these include sustainability related claims. In ESMA’s view this is important both in ensuring that the resulting sustainability claims are fair, clear and not misleading and in mitigating greenwashing risks.

Currently, numerous firms do not have specific processes and procedures for marketing communications with ESG elements. The ones that do had implemented additional controls, such as appointing a sustainability officer or unit, carrying out consistency checks on the marketing materials, which include sustainability claims or developing internal guidance on the approach to such marketing communications, specifically addressing greenwashing risks. 

Next steps

Overall, ESMA encouraged NCAs to use sanctions where breaches of MiFID II are identified, while acknowledging the NCAs’ general preference to use escalated supervisory measures instead. Given the general focus on this area and the continued efforts by ESMA and the NCAs in monitoring marketing activities, firms should consider implementing ESMA’s recommendations into their processes to ensure that they remain compliant with the MiFID II requirements.  

Even though the report focuses on firms subject to MIFID II, there is significant overlap with the views and focus other regulators have on this topic, particularly in the context of greenwashing. 

For further details on other recent regulatory focus on greenwashing please see our  insights here and here. 

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