In July 2023 the European Securities and Markets Authority (‘ESMA’) released a Public Statement in support of the Environmental, Social and Governance (‘ESG’) transition offering guidance on sustainability-related disclosure requirements in prospectuses. While the statement is addressed to NCAs, its contents should be taken into account by issuers and advisors when drawing up prospectuses, including sustainability-related disclosure (with regards to prospectuses only, not any additional disclosure requirements).
Expected ESG disclosure in prospectuses
ESMA expects that material sustainability-related disclosure is included in equity and non-equity prospectuses as well as final terms in accordance with Article 6(1) of the Prospectus Regulation (PR).
Furthermore, ESMA recommends the following:
Issuers should provide the basis for any statements concerning their sustainability profile or that of the securities they issue (for instance by stating that the issuer adheres to a specific market standard and then including material information about the standard); this assists in ensuring the the information in the prospectus is objective in accordance with Recital 27 of the PR. It should be noted that objectivity implies providing a balanced view so that positive and negative aspects are both presented.
Sustainability related disclaimers should not be used to excuse non-performance of factors over which the issuer exercises control; for instance, a disclaimer stating that the proceeds of the offering may be invested contrary to the criteria for project selection set out in a prospectus.
The comprehensibility of any sustainability disclosure should comply with the requirements of Article 37(1) of CDR 2019/980; for instance, mathematical formulas, product structure and any technical terminology should be adequately defined.
Sustainability-related disclosure in equity prospectuses and consistency with non-financial reporting
Where the sustainability-related disclosures published in an issuer’s non-financial reporting in accordance with the Non-Financial Reporting Directive and the future sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD) are material in the context of Article 6(1) PR, issuers should include those disclosures in equity prospectuses.
ESMA also reiterates that both the 2021 and 2022 European Common Enforcement Priorities concerning issuers’ annual financial reports contain recommendations that disclosures be included in issuer’s annual financial statements, as well as their management reports and non-financial statements.
Prospectuses relating to non-equity securities with specific ESG component or objective
Prospectuses and final terms relating to non-equity securities advertised as taking into account an ESG component or pursuing ESG objectives should include the disclosure required in accordance with Article 6(1) PR and the relevant annexes to CDR 2019/980.
Regarding ‘use of proceeds’ bonds, ESMA expects disclosure about the use and the management of the proceeds and information enabling investors to assess the sustainability ambition underpinning the process for project evaluation and selection.
For sustainability-linked bonds, ESMA expects the prospectus to include information about the selected key performance indicator(s) (KPIs), the sustainability performance target(s) (SPTs) and information enabling investors to assess the consistency of the KPIs and its associated SPTs with the relevant sector-specific science-based targets where applicable and the sustainability strategy.
In prospectuses concerning ‘use of proceeds’ bonds or ‘sustainability-linked’ bonds it should be disclosed whether post-issuance information will be provided as well as what information will be provided and how it may be obtained.
Consistency of sustainability-related disclosure in prospectuses and advertisements
Where disclosure is material under Article 6(1) PR, it should be included in the prospectus, this may be done through a supplement to the prospectus. Issuers should ensure the consistency of the information in advertisements with the information in the prospectus, as per 22(3) and (4) PR.
Written by Andie Henderson, Legal and Compliance Associate of Financial Associates International FAI Comply
FAI Comply can assist with the implementation of procedures to ensure your firm maintains regulatory compliance considering ESMA’s requirements. Please contact us to discuss your firm’s specific requirements and to discover how our team of experts can assist you with achieving and maintaining full regulatory compliance.