# EU watchdog backs ESG ‘quality label’ for market benchmarks
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-08-19
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: ESMA calls for EU quality label on ESG benchmarks to tackle
Meta Description: ESMA proposes clear labelling and minimum methodology standards for ESG benchmarks to prevent greenwashing and ensure investor trust.
URL: https://financedigest.com/eu-watchdog-backs-esg-quality-label-for-market-benchmarkshtml

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LONDON (Reuters) – The European Union’s markets watchdog said on Friday that a ‘quality label’ for market benchmarks would help prevent investors being misled by environmental, social and governance (ESG) claims.

Benchmarks are used by asset managers to pick investments for clients, helping to channel millions of euros into sustainable funds and projects, but the criteria behind them vary widely, leading to claims of “greenwashing”.

The absence of clear labelling “raises questions on the inclusion of firms with a negative environmental or social impact in these benchmarks,” the European Securities and Markets Authority (ESMA) said in a statement on Friday.

ESMA was responding to a public consultation from the EU’s executive [European Commission on updating rules](https://www.financedigest.com/four-european-countries-call-for-special-treatment-of-defence-in-eu-debt-rules-document.html "Four European countries call for special treatment of defence in EU debt rules – document") for benchmarks.

Specifying minimum methodology [standards should underpin an EU quality](https://www.financedigest.com/beijing-meets-state-air-quality-standards-for-first-time-in-2021.html "Beijing meets state air quality standards for first time in 2021") label, ESMA said.

“Further, ESMA believes that the introduction of an EU ESG benchmark label would be an extra supporting tool against greenwashing.”

Compilers of [ESG benchmarks based outside the EU should comply with EU rules and supervision if they want investors](https://www.financedigest.com/preventing-poor-esg-practices-from-costing-you-investors.html "Preventing poor ESG practices from costing you investors") inside the bloc to use them, in order to minimise the risk of greenwashing and regulatory arbitrage, the watchdog said.

The commission is expected to set out proposed [changes to the rules](https://www.financedigest.com/uk-watchdog-warns-crypto-firms-to-prepare-for-advertising-rule-change.html "UK watchdog warns crypto firms to prepare for advertising rule change") in due course, which would likely need approval from the European Parliament and EU states.

(Reporting by Huw Jones;Editing by Elaine Hardcastle)


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