• European securities regulator warns ESG exclusions and integration claims remain ambiguous for retail investors
• New thematic note sets expectations for communications and marketing around sustainability strategies
• Guidance seeks to reduce greenwashing risk as EU sustainability disclosure rules expand

The European Securities and Markets Authority has issued its second thematic note on sustainability related claims, expanding scrutiny of how asset managers and other market actors communicate environmental, social, and governance strategies to investors. The focus this time is the growing use of ESG integration and ESG exclusions language in product materials and promotional content.

The regulator said that integration and exclusion remain the most frequently cited approaches across funds marketed to European retail investors. Yet those labels are inconsistently applied and often poorly defined. ESMA stressed that inconsistent usage can erode investor trust and create material greenwashing risk, particularly as sustainable investing products continue to grow in scale and political visibility across the region.

Clarity and transparency were the central themes of the note. According to ESMA, “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.” The regulator added that its objective was not to impose new definitions but rather to “call on market participants to be clear about what they mean when referencing them.”

Growing attention on ESG claims

The thematic note builds on ESMA’s earlier examination of ESG credentials. That first note examined sustainability labels and broader sustainability related marketing. The new guidance narrows in on strategy level disclosures where ambiguity can be highest and where retail investors may rely most heavily on superficial cues when making allocation decisions.

ESG integration has traditionally referred to the incorporation of financially material ESG information into investment analysis. ESG exclusions generally involve negative screening of sectors or issuers that fail to meet defined sustainability criteria. ESMA found that these descriptors are used with significant latitude. In practice, ESG integration has ranged from mild fundamental research considerations to comprehensive valuation models. Exclusions have varied from narrow bans on weapons or thermal coal to broad screens on multiple controversial activities. The regulator said that without accompanying explanation, investors are unable to understand the scale or rigor of sustainability actions behind the label.

Practical expectations for communications

The note also included practical examples of what it considers good and poor practices in sustainability communications. These were framed as do’s and don’ts, informed by market observation rather than hypothetical constructs. Among the expectations is the requirement for clarity on scope, methodology, and governance of ESG strategies. ESMA said market participants should avoid vague sustainability language, exaggerated claims, or aspirational language unsupported by documented processes.

While the note does not create new binding obligations, the authority signaled that such guidance will feed into supervisory convergence efforts across EU national competent authorities. Market participants should therefore expect more consistent review of sustainability marketing across the bloc, particularly at a time when greenwashing has become a political flashpoint within EU institutions.

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Implications for asset managers and distributors

For asset managers, the thematic note interacts with a broader regulatory landscape. Sustainable Finance Disclosure Regulation Level 2 rules have intensified scrutiny of product disclosures and Article 8 and Article 9 designations. The European Commission and the Council are also reviewing the European retail investment strategy, which will influence how sustainability claims are presented to non professional investors.

Fund distributors and advisers are also affected. MiFID suitability rules now require that advisers take sustainability preferences into account when recommending financial products. Ambiguous ESG integration and exclusion claims can complicate suitability assessment and increase risks for intermediaries.

Global relevance

The guidance arrives at a moment of growing global convergence on sustainability disclosures. The International Sustainability Standards Board recently finalized its first climate and general sustainability reporting standards. Other jurisdictions, including the United Kingdom and several Asian markets, are moving toward taxonomy aligned labels for retail sustainable funds. ESMA’s focus on communications reinforces that disclosure quality and product labeling will remain central to greenwashing supervision.

The regulator said its aim was not definitional enforcement but credibility. “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.” By elevating clarity, ESMA is attempting to safeguard investor confidence as sustainable finance matures.

The thematic note will likely shape supervisory practice throughout 2026 and provide reference points for global regulators grappling with the credibility of ESG markets. The EU’s approach may influence how other jurisdictions police sustainability claims, reinforcing Europe’s role as a standard setter in retail sustainable finance.

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