Banks and asset managers continue to make misleading sustainability claims, according to the European Securities and Markets Authority, Esma. Following an investigation into the compliance of marketing communications with MiFID II rules, Esma found that financial products and services are often presented as green without substantiating the sustainability claims.
What’s more, the sustainable features of these products are not always presented in a balanced manner in relation to other features. These practices can mislead potential investors about the nature of the product or service, the financial authority warns.
The Esma investigation, combining the Common Supervisory Action and the Mystery Shopping Exercise, assessed whether public relations and promotional materials are recognisable as such and whether the information provided on returns, risks, costs, and sustainability is fair, clear, and not misleading. The materials examined included websites, newsletters, social media posts, advertisements, blogs, podcasts, and webinars.
Room for improvement
Overall, the survey indicates that marketing communications, including advertisements, generally comply with MiFID II requirements. However, Esma has expressed concerns that marketing materials are not always clearly identifiable as such. Risks and benefits are not consistently presented in a balanced way, and where a service is promoted as incurring no charge, there is often no reference to any additional costs.
Esma concluded in its report that improvements are needed in several areas. Marketing communications should be clearly identifiable and provide a balanced presentation of risks and benefits. In cases where products and services are marketed as having ‹no cost›, any additional costs should be clearly referenced.
Other areas for improvement include the approval and review processes for marketing communications, whether prepared by the bank, asset manager, or third parties. Esma highlighted the need for adequate internal controls and senior management involvement in the development, design, and monitoring of marketing materials. Additionally, the implementation of robust record-keeping measures for all marketing material, including social media posts, needs to be improved. Distributors must also comply with legal requirements for all marketing communications, which is currently sometimes lacking.
Some examples of unfair, unclear or misleading sustainability claims:
- References to ESG ratings or self-created ESG ratings without providing clients with information to understand the meaning of such ratings.
- General statements about a fund’s impact (e.g. referring to United Nations sustainability targets) without a precise description of what this means concretely for the specific promoted product.
- Publication of messages suggesting better performance or lower volatility for sustainable investments compared to traditional investments without sufficient substantiation.
- Publication of brochures outlining the company’s sustainable objectives and ambitions, organisational framework, ESG analysis and integration, sector policies exclusions, partnerships, products, and additionally deals with reporting and transparency without proper hard data on sustainability or ESG figures or mentions of actual impact.
- A poster for a fund with a green planet, windmills, sun and the symbol for recycling while the fund had no ESG profile.
- Unbalanced, excessive emphasis on «sustainable» or «responsible» features of financial instruments or services without sufficient nuance that promoted financial instruments or services also contain unsustainable features.
Source: ESMA, Final Report On the 2023 Common Supervisory Action and Mystery Shopping Exercise on marketing, 2024.