The Financial Supervisory Authority draws the attention of persons drafting prospectuses to sustainability matters and recommends becoming familiar with the instructions issued by ESMA regarding sustainability-related disclosures in prospectuses.¹

Regulations related to disclosure of sustainability matters

The following regulations related to disclosure of sustainability matters in prospectuses are in preparation:

• The Corporate Sustainability Reporting Directive (CSRD), which will be applied in phases from 2024 onwards, is expected to be reflected more broadly in the sustainability information to be included in prospectuses.
• The Commission’s Listing Act proposal, which is in preparation, contains more detailed provisions on disclosing sustainability matters in prospectuses.
• The voluntarily applicable EU Green Bond Standards (EUGBS) Regulation, which is currently being drafted, concerns use-of-proceeds bonds that are used for sustainable purposes. The Regulation can be expected to have an indirect and general impact on sustainability information disclosed in other prospectuses as well.

Since sustainability matters are important from investors’ point of view, ESMA has deemed it necessary to provide instructions already before these forthcoming regulations enter into force. The ESMA guidelines are based on prospectus regulations in force and affect both non-equity and equity prospectuses.

The starting point for the ESMA guidelines is the provision of Article 6 of the Prospectus Regulation, according to which a prospectus shall contain necessary information which is material to an investor for making an informed assessment of a) the assets and liabilities, profits and losses, financial position, and prospects of the issuer and of any guarantor; b) the rights attaching to the securities; and c) the reasons for the issuance and its impact on the issuer.

The prospectus regulations currently in force do not contain express references to sustainability matters with the exception of the introduction of the Prospectus Regulation. Paragraph 54 of the introduction states that among others, 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.

ESMA urges issuers and their advisors to include material sustainability matters in the prospectus even if the content requirements for prospectuses² do not currently specifically mention these. The information relevant for an investor in any given prospectus is affected by the issuer’s situation and the characteristics of the security being supplied.

Overview of disclosure of sustainability matters in prospectuses

According to the ESMA guidelines, the issuers of prospectuses should take the following matters into account:

• Prospectuses should contain material sustainability-related information despite this not being specifically required by the content requirements for prospectuses.
• The sustainability-related claims should be justified and the information should be as objective as possible. For example, the prospectus can contain references to followed market standards or third-party studies.
• The risk descriptions of the prospectuses should take sustainability matters into account. However, disclaimers related to sustainability should not be included in the risk descriptions regarding matters that lie within the issuer’s area of influence. An example of such a matter is a statement that the company can use the proceeds in a manner that breaches the sustainability criteria described in the prospectus.
• The matters related to sustainability must be comprehensible. For example, technical terms related to sustainability must be clearly defined in the prospectus.

Sustainability matters in fixed income prospectuses

The ESMA guidelines consider two types of bonds:

1. bonds the proceeds of which are used for sustainable purposes (use-of-proceeds bonds),
2. bonds the terms and conditions of which are tied to sustainability targets (sustainability-linked bonds).

When a prospectus concerns bonds the proceeds of which are used for sustainable purposes (use-of-proceeds bonds), the prospectus must provide investors with sufficient information on the use of the proceeds, the selection of where the proceeds are directed, and the method of managing the collected assets. 

When the prospectus concerns bonds the terms and conditions of which are tied to the sustainability targets related to a company’s business operations (sustainability-linked bonds), the prospectus must contain information on the selected indicators (key performance indicators, KPIs) and targets (sustainability performance targets, SPTs). If achieving sustainability targets or failing to do so affects the interest paid on a security, this must be disclosed in the prospectus. In addition, a clear description of how the interest is calculated in these situations must be provided.

In prospectuses, sustainability matters usually particularly affect the terms and conditions of the bond and the risk section of the prospectus, in which the key risks associated with sustainability issues must be described. In addition, the material information related to sustainability matters is described in the prospectus, for example, by including a summary of the company’s green finance framework (e.g. Green Bond Framework).

ESMA also recommends that issuers disclose in the prospectus whether they intend provide post-issuance sustainability-related information. This should include an indication of what information will be reported, where the information can be obtained, and whether any assurances will be provided by third parties for this information.

Sustainability matters in equity prospectuses

In accordance with the ESMA guidelines, material sustainability-related information must be included in equity prospectuses. If an issuer is obliged to include a statement of non-financial information³ in accordance with the Accounting Act, this information must be taken into account in the sustainability information of the prospectus. The Corporate Sustainability Reporting Directive (CSRD) will replace these requirements of the Accounting Act as of 2024.

Sustainability-related information disclosed in marketing materials

Marketing materials should be based on the prospectus,⁴ and should not contain any material sustainability-related information or any other material information that is not included in the prospectus.

In conclusion

Sustainability regulations related to prospectuses are in preparation. The more specific impacts of the forthcoming regulations on sustainability information to be disclosed remain difficult to predict. However, it is clear that those who prepare prospectuses will increasingly need to take sustainability matters into account. The forthcoming regulations aim to meet investors’ increasing need for information regarding issuers’ sustainability matters and seek to contribute to avoiding the possible marketing of securities with unfounded sustainability claims.

For further information, please contact:

• Ossi Eräkivi, Chief Specialist, ossi.erakivi(at)fiva.fi or tel. +358 9 183 5213
• Marianne Demecs, Senior Supervisor, marianne.demecs(at)fiva.fi or tel. +358 9 183 5366

¹ ESMA: Public statement on sustainability disclosure in prospectuses 11 July 2023.
² Annexes to Delegated Regulation 2019/980.
³ Accounting Act (1336/1997), chapter 3a.
⁴ In accordance with Article 22(3) of the Prospectus Regulation, advertisements must be clearly recognisable as such. The information contained in advertisements must not be inaccurate or misleading, and must be consistent with the information contained in the prospectus, where already published, or with information required to be in the prospectus, where the prospectus is published afterwards.