The European Securities and Markets Authority (ESMA), is changing its Union Strategic Supervisory Priorities (USSPs) to include ESG disclosures alongside market data quality. This new priority of ESG disclosures will replace costs and performance for retail investment products, and the change represents an important step in the implementation of ESMA’s five-year strategy, which we wrote about earlier.

With a growing demand for ESG-related financial products, ESMA and the National Competent Authorities (NCAs) see the need to take more active steps to protect investors and facilitate investments in a credible ESG market.

“We will foster transparency and comprehensibility of ESG disclosures across key segments of the sustainable finance value chain such as issuers, investment managers or investment firms and hence tackle greenwashing”, they state in the announcement.

ESMA is also aiming to gradually promote increased scrutiny of ESG disclosures through effective and consistent supervision. That will including building supervisory abilities to fully embed sustainable finance into the daily supervisory work and supervisory culture.

For the second USSP, market data quality, common methodologies and thematic reviews are already implemented.

Supervisory action

In relation to costs and performance for retail investment products, ESMA and the NCAs have already carried out these actions:

• Common Supervisory Action (CSA) on costs and fees under the UCITS framework;
• CSA on information on MiFID II costs and charges;
• mystery shopping exercise (with some NCAs);
• CSA on MiFID II suitability requirements and product governance;
• interpretative aids (Guidelines, Q&As);
• draft regulations and technical advice;
• annual Statistical Report monitoring costs’ performance.

The USSPs are an important tool through which ESMA coordinates supervisory action with NCAs on specific topics and key market risks across the EU. NCAs are also required to take these priorities into account when formulating their work strategies.

Both ESMA and NCAs will continue to engage on ESG disclosures and market data quality, and will follow-up on previous work and monitor the evolution of costs as a key element for investors protection.