Communicating about strategies involving environmental, social and governance factors is as much as risk management exercise as it is a growth opportunity.
The European Securities and Markets Authority (ESMA) is clarifying expectations around how ESG strategies should be communicated. Its latest guidance makes clear that vague or overstated claims about ESG integration and ESG exclusions are a source of investor confusion and greenwashing risk.
These principles don’t only apply to European actors. If you’re a Canadian institution, asset manager, asset owner or any other financial market player operating in the European market, these principles also apply to you.
Here are ESMA’s dos and don’ts.
ESG Integration: Explain the mechanics
ESG integration is one of the most commonly used terms in ESG communications and one of the most inconsistently applied. ESMA’s guidance highlights that integration can mean very different things in practice, ranging from a core driver of investment decisions to a marginal input with little portfolio impact.
Do
- Define ESG integration clearly: Explain what ESG integration means in your specific context the first time the term is used. Plain language matters.
- Clarify whether it is binding: Be explicit about whether ESG integration is mandatory, partially applied, or discretionary—and across which asset classes.
- Explain how it affects decisions: State whether ESG factors can trigger buy, sell, weighting, or allocation decisions, or whether they are considered alongside other inputs without direct consequences.
- Be clear on materiality :Specify whether you focus on financially material ESG risks (single materiality) or also consider broader sustainability impacts (double materiality).
- Disclose portfolio impact: Acknowledge when ESG integration results in limited changes to holdings, weights, or tracking error.
Don’t
- Don’t use ESG integration as a catch-all: Avoid using the term to cover exclusions, best-in-class, or other ESG strategies.
- Don’t make vague firm-wide claims: Statements such as “X% of assets are ESG integrated” require clear explanation of what qualifies and what does not.
- Don’t imply superiority by default: ESG integration alone does not justify claims of a superior sustainability profile unless it meaningfully shapes portfolio construction.
ESG Exclusions: Precision beats reassurance
Exclusions are often perceived as easier to communicate, but ESMA notes that they can be just as misleading when criteria, thresholds, or impacts are not clearly disclosed.
Do
- Describe criteria and thresholds: Clearly explain which ESG criteria are used, whether exclusions are absolute or threshold-based, and how those thresholds work.
- Explain the role of materiality: State whether exclusions are based on material ESG risks, values-based considerations, or both—and how consistently this is assessed.
- Be transparent about impact: Disclose whether exclusions materially reduce the investable universe or alter portfolio composition, especially when the impact is limited.
- Clarify governance Explain whether exclusions stem from a firm-wide policy or are tailored to a specific product or benchmark.
Don’t
- Don’t claim exclusions without consistency: An exclusions strategy must rely on defined criteria applied systematically.
- Don’t overstate ambition: Avoid describing exclusions as “advanced” or “above average” if thresholds still allow meaningful exposure to excluded activities.
- Don’t rely on optics: Strong sustainability language paired with negligible portfolio impact is a common source of greenwashing risk.
In all cases, remember to follow the TRUE framework:
The Communications Takeaway
ESMA is not questioning the legitimacy of ESG integration or exclusions. What it is challenging is imprecision.
For communications and public affairs teams:
- Explain how ESG strategies work, not just that they exist
- Be explicit about limits and trade-offs
- Remember that clarity protects both credibility and growth.
In today’s environment, ambiguity is no longer neutral. How ESG strategies are communicated can either reinforce trust or quietly undermine it.
