ESMA’s sustainable finance soft law—fuel for the green Capital Markets Union

The European Securities and Markets Authority (ESMA), one of the European Union (EU) agencies responsible for financial supervision, operates at the intersection of two key EU strategies: the Capital Markets Union (CMU) and the Sustainable Finance Action Plan. While ESMA has limited binding powers, its regulatory activities rely heavily on soft law—an agile regulatory tool ideally suited for sustainable finance due to its flexibility and responsiveness. This article explores how ESMA’s soft law instruments—such as guidelines, questions and answers, no-action letters, and supervisory tools—can address the regulatory challenges of both strategies and facilitate the development of the ‘green CMU’. It highlights the role of soft law in promoting supervisory convergence and integrating environmental, social, and governance markets, while also acknowledging associated risks.