While Environmental, Social and Governance (ESG) considerations are not yet embedded in transaction reporting requirements under regulatory regimes such as the Markets in Financial Instruments Regulation (MiFIR), European Market Infrastructure Regulation (EMIR), or Securities Financing Transactions Regulation (SFTR), firms are carefully evaluating how ESG risk integration is reflected in their broader risk and reporting frameworks. This is potentially paving the way for future regulatory development in this area.
What is the Indirect Impact of ESG on Transaction Reporting?
Transaction reporting frameworks such as EMIR, MiFIR and SFTR do not currently require firms to report ESG-specific attributes. However, as the number of ESG-linked financial products such as green bonds, ESG-index derivatives and sustainability-linked repos continues to grow, regulators such as ESMA are likely to be influenced in how they are represented in transaction reports.
According to the European Banking Authority (EBA), ESG risks should be integrated into the strategies of financial institutions and reflected in their governance and internal control frameworks. This includes maintaining high-quality data and ensuring consistent classification across risk management and regulatory reporting obligations.
How Should Firms Report ESG-Related Financial Instruments?
As ESG-labelled financial instruments become more widespread, firms are under growing pressure to improve transparency, reduce the risk of greenwashing and ensure that ESG-related risks are captured in their internal systems. Current transaction reporting frameworks such as EMIR, MiFIR and SFTR do not yet include ESG-specific fields.
In their Sustainable Finance Roadmap 2022-2024, the European Securities and Markets Authority (ESMA) identifies ESG data quality and product supervision as two of the most fundamental priorities for a well-functioning ESG market. Although formal ESG-aligned transaction reporting rules have not been introduced, ESMA’s roadmap provides direction on how firms should prepare.
Firms are encouraged to begin aligning with ESMA’s supervisory focus in the following areas:
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- Support ESG transparency: ESG disclosures should be reliable and consistent across internal and regulatory reporting. This is particularly important for financial instruments marketed with sustainability-linked characteristics or labelled with terms such as “green” or “social”. With specifically labelled instruments, firms are required to ensure compliance with ESMA’s recent naming and marketing rules. These will be coming into force after May 21, 2025 for existing funds, and are already in force since November 2024 for any new funds on the market
- Monitor and mitigate greenwashing risks: Firms must ensure that the noted sustainability characteristics of financial products are not misleading or unverifiable. Although not explicitly required today, transaction reporting may play a role in future supervisory efforts to detect mislabelling or misuse of ESG claims
- Strengthen internal capabilities: ESMA calls for the enhancement of the supervisory capacity and technical expertise across market participants. Where ESG is a material part of firms’ strategies, they should begin investing in targeted ESG and anti-greenwashing training, and refining their internal data collection systems to ensure that ESG-labelled instruments are correctly classified, valued and reported
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ESMA emphasises the importance of embedding ESG factors into regulatory oversight and enhancing consistent supervision across EU markets. As ESG principles continue to shape the regulatory landscape, firms should ensure ongoing alignment to manage risk, with ESMA’s expectations on data quality, risk monitoring and product transparency. This will help them better prepare for any future regulatory developments concerning transaction reporting requirements for ESG-linked products.
