European Securities Market supervisor sets expectations on sustainability disclosures in prospectuses

In our monthly Sustainable Finance Policy & Regulation round-up we explore the latest in developments to help you get ahead of the key changes shaping the market.

Table of Contents

Recent UK, EU and globally significant policy and regulatory developments and implications for investors, lenders, issuers, and borrowers

  • European Securities and Markets Authority (ESMA) published a public statement on sustainability disclosure in prospectuses


Other announcements and publications


  • The Integrity Council for the Voluntary Carbon Market (ICVCM) published full criteria for assessing voluntary carbon credits and crediting methodologies 



  • UK Financial Reporting Council (FRC) published a call for evidence seeking to endorse the International Sustainability Standards Board (ISSB) IFRS S1 and IFRS S2
  • UK ESG Data and Ratings Working Group (DRWG) launched a consultation on a voluntary Code of Conduct 
  • UK Green Technical Advisory Group (GTAG) released several reports with recommendations to the UK Government around the development of the UK Green Taxonomy, including on ‘Do No Significant Harm’ (DNSH), taxonomy use cases and related reporting 
  • The UK Transition Plan Taskforce (TPT) provided an update on its Transition Plan Disclosure Framework and Implementation Guidance 



  • EU Parliament supported the EU Nature Restoration Law 
  • EU Commission adopted the European Sustainability Reporting Standards (ESRS), published Q&A and draft implementation guidance for the materiality assessment
  • The EU Platform on Sustainable Finance published recommendations on the evolution of Sustainable Finance Disclosure Regulation (SFDR)
  • ESMA launched Common Supervisory Action (CSA) with National Competent Authorities (NCAs) on sustainability-related disclosures and the integration of sustainability risks 
  • ESMA launched a ‘Call for Evidence’ on sustainability, in suitability and product governance

Recent policy developments and implications for investors, lenders, issuers, and borrowers

ESMA published a public statement on sustainability disclosure in prospectuses

The European Securities and Markets Authority, the EU’s financial markets regulator and supervisor, has issued a Public Statement on the sustainability disclosure expected to be included in prospectuses.

The statement sets out ESMA’s expectations on how the specific disclosure requirements of the EU Prospectus Regulation (PR) relate to sustainability-related matters in equity and non-equity prospectuses. The objective of the statement is to help:


  • Ensure a coordinated approach to the scrutiny of sustainability-related disclosure in prospectuses;
  • Provide issuers and their advisors with an understanding of the disclosure that they will be expected to include in their prospectuses; and
  • Support investors’ ability to make an informed investment decision considering the importance of disclosure relating to sustainability-related matters.


ESMA emphasises the importance of an issuer’s non-financial reporting under the Non-Financial Reporting Directive (NFRD) and the future sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD). This is namely because such disclosures may be material under the PR and therefore included in an issuer’s prospectus.

In addition, with regards to non-equity securities advertised as ‘taking into account a specific ESG component or pursuing ESG objectives’, the statement clarifies the disclosures required in relation to ‘use of proceeds’ bonds and ‘sustainability-linked’ bonds.

The Public Statement also notes that sustainability-related disclosure is sometimes included in advertisements but not in prospectuses themselves and highlights that this disclosure should be included in prospectuses if it is material under the PR. ESMA will continue to monitor the market to determine whether this guidance should be modified, for instance, in cases where new products are introduced to the market or there are changes in the legislation.

Notably, in December 2022, the European Commission adopted a Proposal for a Regulation which, among other matters, amends the PR. It also, for debt securities advertised as ‘taking into account ESG factors or pursuing ESG objectives’, includes provision for specifying the ESG-related information to be included in an annex of the prospectus. 


Key considerations for sustainable finance market participants

Issuers / Borrowers

Currently, many issuers take the approach of only including a link to a sustainable finance framework (which isn’t incorporated by reference). However, only including this without any other disclosure on the framework, seems unlikely to be acceptable going forward for ‘in-scope’ prospectuses. Furthermore, extra input from issuers and a review of risk factors may be required as the statement says that ‘risk factors shouldn’t be used as disclaimers where the issuer has control over the circumstances surrounding the perceived risk’. There will be focus on greater comprehensibility and a requirement for better explanation of the rationale behind ESG-related issuances. Additionally, while the statement only applies to PR-approved prospectuses (i.e. not to documents listed on exchange regulated markets), it would be prudent for issuers to consider the statement in connection with all their disclosure documents and sustainability reporting, as there will also be focus on ensuring prospectus disclosure is consistent with advertisements. 


Investors / Lenders

ESMA stated that while the EU Listing Act proposals [1] present disclosures with respect to sustainability matters, there will be a period before they apply. Investors are increasingly considering information on ESG matters when taking informed investment decisions, while policymakers and regulators recognise that it’s necessary to establish rules that require ESG-related information to be provided (where relevant); for example, in the prospectus for equity or non-equity securities offered to the public or admitted to trading on a regulated market. 

From the investor perspective, this should be a welcome step promoting access, consistency and connectivity between the legal documentation of sustainable bond offerings and other marketing documents, such as financing frameworks and investor presentations. 

Other announcements and publications



The Integrity Council for the Voluntary Carbon Market published full criteria for assessing voluntary carbon credits and crediting methodologies 

ICVCM published [2] its full criteria for assessing categories of credits and crediting methodologies, completing its framework which it will use to assess whether carbon credits meet its high-integrity Core Carbon Principles (CCPs). This follows on from a consultation with hundreds of voluntary carbon market stakeholders and organisations and advice from scientific and carbon-crediting specialists. The goal of the assessment framework is to provide a global benchmark for high-integrity credits, with the aim of strengthening the voluntary carbon market to support delivery of global carbon targets.

Carbon-crediting programmes can now apply for assessment. Once approved as CCP-Eligible, programmes will be able to use the CCP label on specific categories of credits that have been approved as meeting the criteria. Going forward, ICVCM will aim to continuously improve the assessment framework by implementing a series of continuous work programmes which will start later this year and inform the next version, due for implementation in 2026.




UK FRC published a Call for evidence seeking to endorse ISSB’s IFRS S1 and IFRS S2

The Financial Reporting Council issued [3] a call for evidence to inform the UK government’s proposed endorsement of the International Sustainability Standards Board’s IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) in the UK, to create UK Sustainability Disclosure Standards (UK SDS) by July 2024.

This call for evidence seeks views on whether application of IFRS Sustainability Disclosure Standards in the context of the UK will result in disclosures that are understandable, relevant, reliable and comparable for investors. It also considers technically feasibility, timeliness of the disclosures alongside general financial reporting, and the proportionality of benefits to the expected incurred costs. 

The deadline for responding to this call for evidence is 11 October 2023. Responses will be used to inform the UK’s Sustainability Disclosure Technical Advisory Committee (TAC), an advisory committee established to focus on the technical aspect of the standards.

Additionally, the Department for Business and Trade (DBT) has issued guidance on the UK government’s framework to create UK SDS. If IFRS S1 and IFRS S2 are endorsed, the UK SDS may be referenced in any legal or regulatory requirements for UK entities. Decisions to require disclosure will be taken independently by the UK government, for UK registered companies and limited liability partnerships, and by the FCA for UK listed companies.


UK ESG Data and Ratings Working Group launched a consultation on a voluntary code of conduct 

The DRWG launched a consultation [4] for a draft voluntary code of conduct for ESG data and ratings providers. As highlighted by the International Organisation of Security Commissions (IOSCO) report [5] in November 2021, the use of ESG ratings and data products has grown considerably and as such so has their role and influence. The report also recommended that ESG ratings and data products providers improve practices across transparency, governance, systems and controls, and management of conflicts of interest. In line with these recommendations, the code of conduct sets out best practice principles for the following areas:

Good governance: Ensuring appropriate governance arrangements are in place including appropriate management of conflicts of interest, transparency procedures and competent personnel and sufficient resources.

Systems and control: Adopt and implement written policies and procedure to help ensure the issuance of quality ESG ratings and data products.

Management of conflicts of interest: Identify, avoid or appropriately manage, mitigate and disclose conflicts of interest to ensure the independence and objectivity of ratings and operations.

Transparency: Make adequate levels of public disclosure and transparency a priority including methodologies and processes.

The consultation will close on 5 October 2023. 


UK GTAG released several reports with recommendations to the UK Government around the development of the UK Green Taxonomy, including on the DNSH, taxonomy use cases and related reporting 

UK Green Technical Advisory Group released [6] its final report with recommendations for increasing the usability of the ‘do no significant harm’ criteria within the UK Green Taxonomy, which the UK Government is expected to consult on during the autumn 2023. 

GTAG states that despite the current usability issues in the EU’s approach to DNSH, the market support for DNSH to be retained in the UK is strong; provided substantive revisions and streamlining are undertaken to improve the usability. The report presents a roadmap to support the design of the DNSH principle, and includes five steps: 


  • HM Government (HMG) should confirm the purpose of, approach to, and definition of, DNSH in the UK Green Taxonomy. This should be set out in the Autumn 2023 consultation. 
  • HMG should improve the transparency of taxonomy disclosures by adopting an approach to disclosures that would enable companies with activities that are not fully taxonomy aligned, but meet the substantial contribution and some DNSH criteria, to disclose the extent to which they meet the DNSH criteria. The approach would not consider such activities as taxonomy aligned, but would provide valuable additional information to the market, which the EU system does not currently enable. 
  • HM Treasury (HMT) should establish functional design parameters for the drafting of DNSH criteria to improve the consistency and usability of criteria. 
  • HMT should streamline the EU DNSH criteria, while revising them for the UK context. However, streamlining should not weaken the scientific basis for criteria, or the overall ambition level for the UK Green Taxonomy. 
  • Guidance to complement DNSH reporting must be produced by a single authority to support successful and effective implementation of the UK Green Taxonomy.
  • The UK should advocate for this new approach to DNSH through bilateral and multilateral discussions and international fora, to put the UK at the forefront of the Green Taxonomy harmonisation debate.

In a separate report [7], GTAG outlined how the UK Green taxonomy can be applied in the context of wider policies. GTAG provided 20 recommendations, these included:


  • Green Gilts: HMT and the Debt Management Office (DMO) should make the taxonomy the guiding framework for green gilt use of proceeds, using a phased approach until all environmental objectives have been addressed. All green eligible expenditure categories that fall under climate change mitigation and climate change adaptation environmental objectives should be consistent with the relevant taxonomy Technical Screening Criteria (TSC). 
  • SDR: Require corporate disclosures of taxonomy alignment and eligibility through the Sustainability Disclosure Requirements (SDR), to be set out in the upcoming consultation from the Department for Business and Trade, and simultaneously work for international alignment and standards.
  • Transition plans: Current and planned taxonomy-alignment and eligibility should be a key component in the development of the transition plans framework.
  • FCA labels and disclosure regime: Current taxonomy alignment should be a key metric in the FCA’s labels and disclosures regime for investment funds. 
  • High quality carbon offsets: HMG should consider activities which are verified and aligned with the climate change mitigation criteria as eligible for carbon offset accreditation (to complement existing codes such as the Peatland Code and the Woodland Carbon Code). This would ensure the environmental integrity of the carbon offsets. However, the actual purchase of carbon credits would NOT be considered a taxonomy-aligned activity or investment.


Additionally, GTAG recommends use cases for the UK Green Taxonomy across public finance and investment, including; local finance; public procurement; infrastructure projects; planning and net zero progress monitoring; tracking green financial flows and foreign investment; nature-based solution investments in the UK Big Nature Impact Fund. GTAG also recommended the development of a voluntary Green Bond Standard for the UK. 

GTAG also published several more technical advisory papers:

One paper [8] examines the scope, coverage, and reporting aspects for adapting and expanding the taxonomy to suit the specific needs of the UK. It proposes that the UK government should prioritise the creation of a UK taxonomy that provides a clear definition of ‘green’ economic activities, and in the shorter term. The decision regarding the potential expansion of the UK taxonomy to encompass transition and / or clarify harmful activities should be reassessed once the current set of relevant sustainable finance policies, such as transition plans and sectoral pathways, have become well-established. From an emissions perspective, the sectoral coverage of the EU Taxonomy is a good fit for the UK’s emissions profile and supports the climate change mitigation objective for the UK Green Taxonomy. There are some potential gaps in existing EU Taxonomy sectors that would need to be addressed, including within energy, buildings, transport and manufacturing but also some notable sectors which are not covered at all, e.g. agriculture. 

The second paper [9] focuses on Key Performance Indicator (KPI) reporting and underscores the critical importance of the sequencing of reporting requirements and the selection of KPIs to ensure that the UK taxonomy is practical and valuable. In this paper, GTAG recommends that corporations should report ahead of financial institutions, as the latter rely on information disclosed by clients and investee companies for their own reporting. Additionally, GTAG suggests addressing challenges relating to the KPIs used for reporting against the EU taxonomy, including a reassessment of KPIs relevant to non-financial companies, credit institutions and investors.

Finally, GTAG published a paper [15] with recommendations to help minimise data gaps to support more reliable and meaningful taxonomy disclosures and a paper [16] with recommendations on the impact of the UK Taxonomy on activities that were previously considered ‘green’. The paper advises on how taxonomy-aligned activities, products and investments should be treated as the taxonomy changes over time.


The UK Transition Plan Taskforce provided an update on its Transition Plan Disclosure Framework and Implementation Guidance 

Back in November 2022, the TPT launched the initial consultation for its draft Disclosure Framework and Implementation Guidance which set out best practices for how firms should explain their transition plans based on Ambition, Action and Accountability. Overall, the TPT engaged with over 500 organisations and received over 80 written responses. On 27th July 2023, the TPT published a status update on their work to date [10].

Key themes that emerged from the feedback received include:


  • Broad support for the draft Disclosure Framework and key disclosure recommendations
  • Importance of international alignment to existing and emerging regulatory landscape
  • Users expect recommended disclosures to be useful for decision-making while preparers expecting certain parts of the framework to present disclosure challenges (i.e. disclosures under Implementation Strategy and Financial Planning)
  • Calls to provide clearer benchmarks for ambition and for further guidance, examples and case studies


The TPT is reviewing this feedback and is set to finalise the Disclosure Framework in October 2023 and Implementation Guidance by February 2024. Alongside this sector-neutral work, the TPT has started to prepare guidance relating to specific sectors which will support the Disclosure Framework and Implementation Guidance. A draft of the sector specific guidance is expected to be released in November 2023 with a view to be finalised early 2024. 




EU Parliament supported the EU Nature Restoration Law 

The European Parliament narrowly adopted [11] its position on the Nature Restoration Law proposal, with 336 votes in favour, 300 against and 13 abstentions. The report sets out the Parliament’s position for upcoming negotiations with the Council. MEPs supported the Commission’s proposal to put restoration measures in place by 2030 covering at least 20% of all land and sea areas in the EU, highlighting that restoring ecosystems is crucial to combat climate change and biodiversity loss and reduce risks to food security. Negotiations with Member States and the Commission, to agree on the final legislation, have now begun.


EU Commission adopted the European Sustainability Reporting Standards, published Q&A and draft implementation guidance for the materiality assessment 

The European Commission adopted [12] the first set of European Sustainability Reporting Standards under the Corporate Sustainability Reporting Directive (CSRD) which includes cross-cutting standards as well as specific standards on E, S & G matters. The Commission also published a related Q&A document [13] 


Cross-cutting standards:

  • ESRS 1 General requirements
  • ESRS 2 General disclosures


Standards on Environmental, Social and Governance matters:

  • ESRS E1 Climate change
  • ESRS E2 Pollution
  • ESRS E3 Water and marine resources
  • ESRS E4 Biodiversity and ecosystems
  • ESRS E5 Resource use and circular economy
  • ESRS S1 Own workforce
  • ESRS S2 Workers in the value chain


The standards require companies to perform a robust materiality assessment which should be subject to external assurance. To support reporting entities with this process, EFRAG published draft guidance [14] for the double materiality assessment. Under ESRS 1, sustainability information must be included in a clearly identified single section of the management report and referred to as ‘sustainability statements’. The disclosure requirements specified in ESRS 2 “General disclosures”, are considered material by default and should be adhered to. Additionally, where a topic is deemed to not be material, the company can omit all related disclosure standards associated with the ESRS, except for ESRS E1 on climate change. Instead, the company must disclose why climate is not considered to be material. Additionally, companies would be required to explicitly state that the information is “not material” if they do not report a datapoint that derives from other EU legislation. The other ESRSs could be implemented as a standalone section in a company’s annual report / company website. To avoid duplication of information, cross-referencing is permissible to other sections of the management report, financial statements, corporate governance report, remuneration report and any public disclosures. 

The ESRS will apply from 1 January 2024, with first sustainability statements to be published in 2025 by large, listed companies*.


The EU Platform on Sustainable Finance published recommendations on the evolution of SFDR

The Platform on Sustainable Finance outlined five fundamental principles for reporting requirements, in response to the joint consultation by the ESAs on the review of SFDR Delegated Regulation concerning Principal Adverse Impact Indicators (PAI) and financial product disclosures:


  • Relevance to investors
  • Consistency with other regulations
  • Proportionality for market participants
  • Applicability, including internationally
  • Precaution, ensuring that disclosures neither overstate positive information nor underestimate negative information.


Additionally, the Platform put forth proposals for further work related to small and medium-sized enterprises, investments in developing countries, derivatives, and other aspects of SFDR and the Taxonomy.

The Platform envisions the future of SFDR as comprising two types of environmental “sustainable investments” in the long term: activity-based and entity-based. They also aim to address challenges related to DNSH assessment.

Furthermore, the Platform recommends that the European Commission ensure greater consistency between ESRSs, PAIs, Low Carbon Benchmarks, and the Taxonomy Regulation. They support the ESAs’ suggestion of providing more specific disclosures on how PAI indicators are factored into DNSH. The Platform also presents concrete proposals for the introduction of greenhouse gas (GHG) emission target disclosures.

Regarding data availability, the Platform has identified gaps in the coverage of mandatory PAIs. They acknowledge the difficulties faced by financial market participants and emphasise that any approach to reducing data gaps, including estimations and engagement, must adhere to the precautionary principle, particularly concerning ‘do no significant harm’ aspects and when making inferences based on the least reported PAIs (biodiversity, emissions to water, and gender pay gap).

The Platform anticipates an increase in both reported and estimated data availability in the near future. They believe that guidance on estimates should provide specific recommendations for each PAI indicator, including guidance on estimation methods or potential proxies for non-CSRD undertakings and the establishment of tolerance levels. The Platform is committed to continuing its work in this area.

The European Commission has confirmed the launch of a public consultation on a comprehensive assessment of SFDR in September. This consultation will run for three months and will be accompanied by workshops involving market participants and other stakeholders. The initiative will commence with a high-level roundtable featuring Commissioner Mairead McGuinness on 10th October.


ESMA launched Common Supervisory Action with National Competent Authorities on sustainability-related disclosures and the integration of sustainability risks 

The CSA’s goal is to assess the compliance of supervised asset managers with the relevant provisions in the Sustainable Finance Disclosure Regulation, the Taxonomy Regulation and relevant implementing measures, including the relevant provision in the UCITS and AIFMD implementing acts on the integration of sustainability risks. The main objectives of the CSA are:


  • To assess whether market participants adhere to applicable rules and standards in practice.
  • To gather further information on greenwashing risks in the investment management sector, which will provide input to ESMA’s final report on greenwashing.
  • To identify further relevant supervisory and regulatory intervention to address the issue.


In 2023 and until Q3 2024, NCAs will undertake their supervisory activities and share knowledge and experiences through ESMA to foster convergence in how they supervise sustainability-related disclosures and sustainability risk integration in asset managers. 


ESMA launched call for evidence on sustainability in suitability and product governance

The objective of this Call for Evidence (CfE) is to gather industry feedback that will help better understand the evolution of the market and provide answers as to how firms apply the new MiFID rules on sustainability.

In particular, the CfE aims to help ESMA:


  • Develop a better understanding of how MiFID II requirements are being implemented and applied by firms across the Union and the challenges firms face in their application.
  • Gain a better understanding of investor experience and reactions to the inclusion of sustainability factors in investment advice and portfolio management services.
  • Collect information, views and data on main trends on aspects related to the provision of sustainable investment products and services to retail clients.


As a reminder, ESMA has previously updated its guidelines on suitability and product governance requirements following the inclusion of sustainability-related requirements for investment firms into MiFID II. 

For those looking to discuss any of the above further, please reach out to our authors:

  • Tonia Plakhotniuk, Vice President, Climate & ESG Capital Markets
  • Daniel Bressler, Vice President, Climate & ESG Capital Markets, Corporates
  • Roze Warren, Associate, ESG Advisory
  • Amanda Chua, ESG Advisory
  • Tyler Mayzes, Analyst, Climate & ESG Capital Markets, Corporates
  • Siobhan Wartnaby, Analyst, Climate & ESG Capital Markets
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