Sustainable Financial Markets – Translating Changing Risks and Investor Preferences into Regulatory Action

On February 12, 2020, Steven Maijoor (Chair of the European Securities and Markets Authority (“ESMA”)), gave a keynote address at the European Financial Forum in Dublin on the promotion of sustainable financial markets.

In his speech, Mr Maijoor highlighted that a key cause of financial instability derives from climate change and environmental risks. He noted that investor appetite has moved towards financial products in which Environmental, Social and Governance (“ESG”) factors are taken into account.

Mr Maijoor opined that the public sector should have a more significant role in ensuring that high-quality ESG information is standardized through public disclosure requirements. He went on to say that public authorities must play a part in preventing the risk of greenwashing where products are mis-sold or mislabelled. He stated that “we need to be careful to ensure that investors do not end up buying products which are marketed as sustainable when in reality they are not”.

Focus was given to green bonds, which Mr Maijoor believes require a European standard and stronger monitoring, and to ESG ratings, the supervision of which he described as “far from optimal”. He explained that the methodology behind the scoring mechanisms results in disparities. This does not allow investors to accurately compare the purported sustainability of investments and, in turn, contributes to potential greenwashing.

Mr Maijoor concluded by reiterating that ESMA is committed to contributing to a sustainable European financial system through giving support to required measures across the whole investment chain.

To read the speech in full, please click here.