The European Securities and Markets Authority (ESMA) has now published four thematic notes on clear, fair and not misleading sustainability-related claims, with the view of addressing greenwashing risks in support of sustainable investments.

This blog will focus on the Third Note relating to impact claims (the Note).

Positive impact is about going beyond seeking solely financial returns and making a difference for the environment and/or society. Communicating impact is a challenging task and it can be easy to oversimplify it, over-claim the credit, or to cherry pick the bits that sound most impressive. The Note provides useful examples and guidance on how impact should and should not be communicated.

The Note explains the difference between investee impact (the positive impact generated by a company) and investor impact (actions aimed at influencing and enhancing company’s results). 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, in the absence of that involvement. It is inherently difficult to measure. Some companies may be tempted to give investors more credit than they are due, but failure to communicate the investor contribution appropriately can result in misleading claims.

Other instances where impact claims become misleading include when:

1. Objectives are absent, non-binding, or too broad
2. The theory of change is vague or missing
3. Impact claims are unambitious or when KPIs are easily achievable
4. Investors take full credit, without acknowledging that this outcome was also influenced by engagement of others
5. Claims are ambiguous and not consistent with a company’s sustainability strategy
6. When claims are insufficiently substantiated.

You can read the full note on impact here.

ESMA recognised that misleading sustainability claims are a concern from an investor protection perspective and have previously written extensively about greenwashing risks in their Final Report on Greenwashing in 2024.

Private Goodness offers masterclasses on navigating the UK greenwashing rules and the new EU greenwashing rules (EmpCo). We also offer expert evaluation to protect your reports from unintentional greenwashing. Find out more here http://www.privategoodness.com