ESMA makes Public Statement on sustainability disclosure in prospectuses

ESMA has issued a Public Statement on sustainability disclosure in prospectuses (both equity and non-equity)¹ under the EU Prospectus Regulation. Its intention is to promote coordinated action by competent authorities, issuers and advisers regarding the sustainability-related disclosure that should be included in prospectuses under the EU Prospectus Regulation.

Key points

• The inclusion of sustainability-related disclosure in a prospectus may be required in order to satisfy the "necessary information test" under Article 6(1) of the EU Prospectus Regulation;
• material sustainability-related disclosure appearing in an advertisement must appear first in a prospectus;
• information as to the basis of any statements regarding the sustainability profile of the issuer or of the securities must be provided, and statements must be fairly balanced;
• disclaimers may be included, but they cannot be used to excuse non-performance of matters within the issuer's control;
• sustainability-related disclosure must be comprehensible; and
• ESMA has specified certain additional information that it expects to be included in a prospectus in relation to "use of proceeds bonds" and "sustainability-linked bonds".

Organisation

The guidance in the Public Statement can be categorised as:

• general disclosure principles;
• specific disclosure items; and
• additional Information requirements.

We summarise the guidance in each such category below.

General disclosure principles

"… a prospectus shall contain the necessary information which is material to an investor for making an informed assessment of:

• the assets and liabilities, profits and losses, financial position, and prospects of the issuer and any guarantor;
• the rights attaching to the securities; and
• the reasons for the issuance and its impact on the issuer (emphasis added)."

Relatedly, with regard to risk factors, ESMA reminds issuers of Recital 54 to the EU Prospectus Regulation:

"[…] environmental, social and governance circumstances can also constitute specific and material risks for the issuer and its securities and, in that case, should be disclosed."

2. Material sustainability-related disclosure appearing in an advertisement must appear first in a prospectus

Where sustainability-related disclosure is provided in an issuer's advertisements, such disclosure should first be included in the issuer's prospectus if it is material under Article 6(1). ESMA considers that the inclusion of such sustainability-related disclosure in an advertisement is an indication of its materiality.

Specific disclosure items

1. Information as to the basis of any statements regarding the sustainability profile of the issuer or of the securities must be provided, and statements must be fairly balanced

Any statements concerning an issuer's sustainability profile or that of the relevant securities must include information on the basis of such statements. For example, by (as applicable):

• stating that the issuer or the securities adhere to a specific market standard or label and including the material information about that standard or label in the prospectus;
• referring to the relevant underlying data and assumptions; and/or
• referring to any relevant research or analysis by third parties.

Any statements concerning an issuer's sustainability profile or that of the relevant securities must provide a balanced view; both positive and negative aspects should be presented.

2. Disclaimers may be included, but they cannot be used to excuse non-performance of matters within the issuer's control

ESMA acknowledges that it is acceptable to include disclaimers (which may be characterised as risk factors) on matters outside of an issuer's control such as the risk that an investor's sustainability expectations may differ from those of the issuer or that the understanding of what constitutes "sustainability" may change according to scientific progress, relevant legislation and/or investor preferences. However, ESMA considers that sustainability-related disclaimers should not be used to excuse non-performance of matters over which the issuer exercises control such as, for example, a disclaimer stating that the proceeds of the offering may be invested in a manner which is contrary to the criteria for project selection described in the prospectus.

3. Sustainability-related disclosure must be comprehensible

ESMA reminds competent authorities (and, by extension, the issuers of the relevant prospectuses) of the requirements under the EU Prospectus Regulation with regard to ensuring that the prospectus is comprehensible to prospective investors². In particular, the prospectus should clearly define the components of mathematical formulas and, where applicable, clearly describe the product structure. Any technical terminology relating to sustainability should also be adequately defined.

Additional information requirements

In the Public Statement, ESMA provides a table setting out the disclosures that ESMA expects to be included in a prospectus in relation to "use of proceeds bonds" (UoP bonds) and "sustainability-linked bonds" (SLB bonds). We summarise these below: