What can corporate treasurers expect from the European Securities and Markets Authority (ESMA), which coordinates the work of European regulators on many topics of interest to the profession? At the recent AFTE conference, ESMA’s Executive Director, Natacha Cazenave, provided a comprehensive update.
ESMA coordinates the application of European directives and regulations in the financial sector. This Paris-based organization is responsible for around 30 pieces of legislation, several of which concern treasurers directly, particularly in the areas of credit ratings, the distribution of financial products and post-trade regulation. “What can you expect from us? An authority that is open, pragmatic, attentive to your concerns and that strives to make clear rules that enable you to win market share,” ESMA Executive Director Natacha Cazenave told treasurers attending the recent AFTE conference.
CSRD and the Omnibus Directive
Ms Cazenave began by discussing the Corporate Sustainability Reporting Directive (CSRD) and the Omnibus directive, a set of proposed amendments by the European Commission to simplify and reduce the reporting burden that CSRD involves.
She recalled a basic principle: “Supervision of sustainability reporting remains the responsibility of the national supervisor”. ESMA brings these supervisors together to harmonize the implementation of sustainability reporting, with the aim of achieving “a common understanding and comparability for investors”. In other words, ESMA works to align national practices so that ESG reporting information is comparable from one market to another.
She believes that companies’ criticism of CSRD has been heard. “People have pushed back and said ‘This is too much’”. It is in this context that “the Omnibus Directive is intended to simplify reporting” while ensuring that it remains “consistent with what other stakeholders, in particular bank lenders and market investors, need to produce their own regulatory reporting”. The stated objective is clear: to achieve “consistency between the texts” rather than adding successive layers of requirements that pile up with no real coordination.
Europe in the lead
Europe has established a form of leadership in the field of sustainable finance. The outstanding amount of ESG bonds stands at EUR 2.4 trillion, two-thirds of which are green bonds. According to Natacha Cazenave, this is “a market that is functioning well and continuing to grow”. On 21 December 2024, a new regulation establishing a voluntary market label for funds that invest at least 85% of their assets in sustainable investments was adopted. Under this new framework, which will come into force in 2026, ESMA will be responsible for supervising these fund managers. “More than 30 have expressed an interest in being subject to the new regime.”
ESG data providers and rating agencies to be treated differently
ESMA is adopting a different approach to ESG data providers and ESG rating agencies, with Ms Cazenave explaining that “There has been a decision not to regulate ESG data providers because there is no uniformity in this area”. ESG rating agencies, by contrast, will be supervised by ESMA. The regulator sees a clear dividing line between highly diverse data aggregators on one hand and rating agencies whose influence on investment decisions merits specific oversight on the other.
Promoting innovation
Referring to digitalization, crypto assets, stablecoins and the tokenization of assets, Natacha Cazenave noted that “innovation, its abundance and the speed of its development are quite striking”. The EU’s Markets in Crypto-Assets (MiCA) regulation, which establishes a regulatory framework for these new assets, “has been closely watched by regulators in the US, UK and Asia because it is the first attempt to introduce a framework that regulates while still supporting innovation”. ESMA has indicated that it is now working on the authorization of market participants: “we are bringing together national authorities to ensure that a consistent response is provided in each member state when it comes to granting licences”.
When discussing stablecoins, Ms Cazenave put the topic into perspective: “The amount outstanding – in the region of USD 250 billion – is very modest compared with the financial system as a whole”. On tokenisation, she also explained that ESMA acknowledges the simplification and beneficial use cases offered by stablecoins in diverse fields including post-trade processes and providing access to shares through derivatives. “We are trying to understand innovation, identify where it can support competitiveness and put safeguards in place where it poses risks for investors.” In other words, ESMA sees its role as to support useful innovation while regulating risks where they arise.
United in diversity
ESMA is working to strengthen the autonomy and efficiency of European markets. Its aim is to support “the financing of priorities such as the digital transition, defence and the environment, which together form Europe’s strategic roadmap”. This is why the European Commission launched the Capital Markets Union in 2015. Although the union’s progress is often criticised as slow, it plays an important role in connecting European savings with investment needs.
Asked about Christine Lagarde’s wish that ESMA become a kind of “European SEC”, Ms Cazenave acknowledged the flattering nature of the comparison but stressed that the US and European markets are profoundly different. On the one hand, the US is a federal state with a unified institutional architecture; on the other, the 27 member states of the EU must build a common project and share responsibilities in financial regulation.
Natacha Cazenave made clear the need to preserve this specifically European model, tailored to this reality. “Despite the very strong cultural, historical and linguistic differences between member states, national supervisory authorities are learning and managing to build together. This collective effort is driven by the desire to contribute to the public good.” She concluded by recalling the Union’s motto: “United in diversity.”