ESMA Calls for Clearer ESG Disclosures in EU Benchmarking

The European Securities and Markets Authority (ESMA) has published the final report on its Common Supervisory Action (CSA) concerning environmental, social, and governance (ESG) disclosures under the Benchmarks Regulation (BMR). The report, dated 9 April 2025, outlines widespread inconsistencies in how benchmark administrators report ESG factors, and includes recommendations for refining regulatory standards to improve data comparability, reduce ambiguity, and protect investors.

Launched in January 2024 in cooperation with national competent authorities (NCAs), the CSA was designed to assess whether administrators comply with mandatory ESG disclosure requirements, especially for benchmarks that incorporate ESG factors or pursue ESG objectives, including Climate Transition Benchmarks (EU CTB) and Paris-aligned Benchmarks (EU PAB). It is the first initiative of its kind involving direct ESMA supervision and cross-border collaboration.

Administrators often interpreted key ESG terms differently

The CSA examined how benchmark administrators explain the ESG aspects of their methodologies and statements. ESMA reported that administrators often interpreted key ESG terms differently, resulting in varied practices when defining and calculating factors. For example, some benchmarks used ESG labels such as “green” or “climate” without reflecting those characteristics in their methodology, raising concerns about potentially misleading naming.

Administrators also showed divergent methods in the handling of specific metrics such as greenhouse gas (GHG) intensity, gender pay gaps, and exposure to controversial weapons. For GHG emissions, the use of Scope 3 data—emissions not produced directly by the company but by those that it is indirectly responsible for—remained inconsistent, undermining comparability. Likewise, the calculation of gender pay gaps and social violations varied significantly across providers, due in part to differences in data availability and the lack of a uniform methodology.

A recurring issue was low data coverage for several ESG metrics, especially within the social dimension. For example, the data needed to calculate gender pay disparities or incidents involving anti-bribery violations were often incomplete or unavailable. In response, ESMA urged administrators to be more transparent about data coverage, disclose the percentage of benchmark constituents included in the calculation, and clearly explain their methodologies.

In terms of supervision, ESMA emphasized that the current BMR framework mandates ESG disclosures only for benchmarks that explicitly integrate ESG factors. However, the report identified cases where high-level exclusions, such as the removal of tobacco or controversial weapons from constituent lists, were incorrectly treated as ESG benchmarks. ESMA clarified that such exclusions alone do not qualify a benchmark as ESG-focused and should not trigger mandatory disclosure obligations.

The findings support ESMA’s call for an overhaul of the BMR Level 2 disclosure requirements. The authority recommends moving toward more targeted, objective-based ESG reporting that focuses on metrics aligned with a benchmark’s stated sustainability goals. This would streamline reporting, reduce the burden on administrators, and improve alignment with broader EU sustainable finance regulations, including the Sustainable Finance Disclosure Regulation (SFDR), Corporate Sustainability Reporting Directive (CSRD), and the EU Taxonomy.

Future revisions to the regulatory framework, ESMA suggests, should ensure consistency across ESG legislation and emphasize the use of key sustainability metrics. These include greenhouse gas emissions, human rights practices, and corporate governance indicators. ESMA also proposed aligning ESG definitions with other EU instruments, such as integrating taxonomy-based measures for environmental goods and services in place of older frameworks.

The report also noted that 84 benchmark administrators were under EU supervision as of November 2024. Only 12 of those offered EU CTB and PAB products, suggesting that the market for ESG-aligned benchmarks remains small but growing. In this context, ESMA stressed the need for robust supervisory convergence to maintain credibility and avoid greenwashing.

Looking ahead, ESMA will work with the European Commission on possible amendments to delegated acts under BMR, aiming to refine the definitions, calculations, and minimum disclosure standards for ESG factors. The authority signaled its intention to offer technical advice for regulatory updates and to expand its use of supervisory convergence tools.

By pushing for clearer expectations and better-aligned reporting standards, ESMA is setting the stage for more reliable ESG data in European benchmark markets. This, the report argues, will help asset managers, investors, and other benchmark users assess the integrity of sustainability claims and support informed decision-making in capital markets.