Dutch AFM publishes draft Guidelines on Sustainability Claims

Introduction

Sustainability remains a supervisory priority for the AFM and it published draft Guidelines on Sustainability Claims for public consultation on 12 June 2023. The purpose of these Guidelines is to contribute to more transparency on sustainability claims made by financial firms and pension providers by providing guidance on the use of sustainability claims.

What is about?

Financial firms and pension providers increasingly refer to sustainability-related aspects when providing information to clients. This concerns claims in both non-mandatory information, such as marketing materials, and mandatory information such as disclosures under SFDR, either relating to the firm itself or to products. Financial firms and pension providers are under an obligation to ensure that the information they provide is fair, clear and not-misleading. As set out above, the Guidelines provide guidance on the use of sustainability claims.

The term “sustainability” as used in the Guidelines does not refer to a specific definition used in EU regulation (e.g., under SFDR or Taxonomy) nor does it introduce a new definition. Instead it covers the concept of sustainability in the broadest sense.

Which firms should care?

The Guidelines apply to pension providers and financial firms, which term covers financially regulated firms such as banks, insurers, investment firms, AIFMs, UCITS management companies etc. The Guidelines are relevant for all financial firms and pension providers that make sustainability claims, regardless of the information medium in which such claims are made.

What should they know?

The AFM provides insight in how it considers the topic of sustainability in the context of the existing regulatory requirements on the provision of information. The Guidelines provide that a sustainability claim is fair, clear and not-misleading if such sustainability claim complies with the following principles:

Principle 1: Accurate, representative and up to date

• sustainability claims must be accurate, meaning they correspond to reality, and must not contain contradictions;
• sustainability claims should give an accurate reflection and be representative of the firm or the product; and
• information used in sustainability claims should be up to date.

In the context of this principle one of the examples the AFM provides is that an Article 6, 8 or 9 SFDR classification in itself should not be presented as substantiation for a certain degree of sustainability of a product. This due to the fact that an SFDR classification does not necessarily guarantee a degree of sustainability and is not a sustainability label.

Principle 2: Specific and substantiated

• specify what a sustainability claims means for the relevant product or the firm; and
• sustainability claims must be substantiated, backed up by facts and cogent explanation.

The AFM provides the use of ESG scores (e.g., “a ‘9’ for sustainability”) without substantiation that allows the reader to ascertain what the rating means, when it was issued and what the scale used is, as an example of bad practice.

Principle 3: Understandable, appropriate and easy to find

• sustainability claims must be communicated in understandable language, should avoid the use of difficult terms and must explain complex concepts when those are referred to;
• sustainability terms (such as “ESG”, “green”, “sustainable” and “impact”) should be used appropriately and when used should be considerate of the readers’ expectations; and
• the relevant information to the claim should be easy to find by readers and different information carriers should be mutually cohesive.

For illustration the Guidelines contain examples on the use of vague and complex language, as well as lengthy and overly complex policies. The AFM suggests to make available summaries of sustainability policies setting out key information that is concrete, clear and relevant, as a good practice.

Any further thoughts?

The Guidelines are published for public consultation. Input can be given until 24 July 2023. Based on the responses the AFM receives, the Guidelines may be amended after which the finalised Guidelines will be published on the AFM’s website.

The draft Guidelines are available in Dutch (here) and English (here).