General expectations

Thematic notes are prepared for market participants with an educational objective and build on observed market practices. These notes do not create new regulatory requirements but aim to remind participants of their responsibilities to make clear, fair, and not-misleading claims. This third note specifically focuses on impact claims, following previous work by the European Securities and Markets Authority (ESMA) on addressing greenwashing risks. Market participants are encouraged to read the combined notes as a thematic study.

Why do sustainability claims matter?

Market participants have a responsibility to communicate sustainability information in line with the principle of “fair, clear, and not-misleading information”. Sustainability claims relate to key aspects of an entity’s or product’s sustainability profile. Such claims risk being misinterpreted or misleading to investors, regardless of the participant’s intention. Misleading claims often arise from cherry-picking, exaggeration, omission, vagueness, inconsistency, a lack of meaningful comparisons or thresholds, and misleading imagery or sounds.

Four principles to follow

ESMA defines four core principles to ensure sustainability claims remain clear and fair. Firstly, claims must be accurate, fairly representing the entity’s sustainability profile without exaggeration. They should be precise and based on both positive and negative aspects, avoiding the omission of relevant information. Secondly, claims must be accessible, meaning information is easy to browse and provided at an appropriate level of detail. For electronic documents, further substantiation can be presented in layers to avoid overwhelming retail investors. Thirdly, claims must be substantiated with clear and credible reasoning, facts, and processes. This includes using meaningful methodologies and thresholds, disclosing limitations of data, and comparing “like with like”. Finally, claims must be up to date, with material changes disclosed in a timely manner. Clear indications of analysis dates and perimeters are recommended for this purpose.

Sustainability claims about impact

Targeting positive impact is understood as seeking financial returns while making a real difference for the environment or society. Impact claims cover statements that explicitly or implicitly mention “impact”, “positive change”, or equivalent terms. These claims are commonly observed in relation to investment funds, use of proceeds (UoP) bonds, and sustainability-linked bonds (SLBs).

Reasoning

There is often confusion between investor and investee impact. Market participants understand environmental or social impacts differently and attach varying levels of ambition to their claims. Communication should clearly address how a fund or bond intends to create positive impact (intentionality), generates impact that might not otherwise happen (additionality), and how that impact is measured (measurability).

Impact in theory

Intentionality refers to having an explicit aim to generate impact, reflected in clear objectives and a “theory of change”. Additionality is a defining characteristic of impact investing, relating to both the investee and the investor’s actions. Investee impact refers to positive outcomes generated by a company or project, such as developing new technology for sustainable agriculture. Investor impact results from actions like providing new capital to underserved markets or engaging with companies to enhance outcomes. Investor additionality refers to outcomes that would not have occurred, or would have occurred to a lesser degree, without the investor’s contribution. Measurability involves tracking progress using key performance indicators (KPIs) focused on outputs (e.g. emissions), outcomes (e.g. emissions avoided), or impact (e.g. soil quality improvements).

Observed market practices

Market practices diverge due to different frameworks, with three out of seven frameworks requiring investor additionality for alternative private funds. Common issues include broad, non-binding objectives (such as broadly promoting UN SDGs) and the use of ESG criteria as a substitute for specific impact criteria. In some cases, funds present portfolio-level metrics derived from investee companies as evidence of investor-level impact without clarifying the distinction. For bonds, information regarding alignment with issuer strategy can be unclear, and some issuers fail to provide post-issuance reporting aligned with pre-issuance commitments.

Impact claims by funds and bonds

Market participants are advised to clarify targeted environmental or social problems and explain how impact is attained and measured. Ambition should be stated with reference to intentionality, additionality, and measurability. Participants should not make claims without a theory of change or rely on exclusion-based screening as a substitute for impact-related criteria. Labelling products as “impact” solely due to an asset class or sector is also discouraged.

Funds’ impact claims

Funds should define clear impact objectives linked to specific challenges and ensure consistency between ambition and investment strategy. They must clarify whether they aim for investee impact, investor impact, or both. If targeting investee impact, funds should clarify how these considerations influence investment decisions. They should avoid using ambiguous terms or implying that investor ownership of listed securities alone generates impact. Referencing impact-motivated engagement is only appropriate if it is clearly differentiated from standard ESG engagement.

Bonds’ impact claims

Bond issuers should ensure consistency between impact claims and their broader sustainability strategy. They must be transparent about the materiality of financed projects (UoP) or targets (SLBs) relative to core business operations. For UoP bonds, issuers should ensure proceeds are allocated to identifiable projects with a verifiable funding link. For SLBs, the ambition of Sustainability Performance Targets (SPTs) must be explained. Issuers should not use easily achievable KPIs as sole evidence of impact or fail to deliver committed post-issuance reporting.