New reports on the understanding of greenwashing

Published 22 August 2023

PrintCategory: Impact and ESG

In June the European Supervisory Authorities EBA (European Banking Authority), EIOPA (European Insurance and Occupational Pensions Authority) and ESMA (European Securities and Markets Authority) (together “ESAs”), published progress reports on greenwashing and its application to the financial sector.

The progress reports are a result of a push from stakeholders requesting greater market integrity, investor protection and trusted environments for sustainable investments as sustainability has become an important competitive factor.

The ESAs has defined greenwashing as “a practice where sustainability-related statements, declarations, actions, or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product or financial services. This practice may be misleading to consumers, investors, or other market participants.” Further, they emphasize that it is not a requirement for it to be greenwashing that an investor is harmed. Also, the ESAs underline that misleading claims in relation to sustainability can spread both intentionally and unintentionally.

The ESMA progress report aims towards creating shared reference point in dealing with greenwashing. Further, the report seeks to clarify how to monitor, remedy and prevent greenwashing and the risks related to it in an effective way. The report touches upon the causes of greenwashing, risk areas and preliminary remediation actions. It underlines that greenwashing does not stem from one specific factor but is a consequence of various factors such as receiving and providing high-quality sustainability data and challenges of implementing regulatory framework. Further, the report assesses and identifies the areas within the sustainable investment value chain which are most exposed to greenwashing risks.

Some of the preliminary remediation actions addressed in the ESMA progress report are to focus on a more balance communication on sustainability, make sustainability disclosures more understandable and improve the integration of sustainability impact.

Next steps: The ESAs are expected to publish final reports on greenwashing in May 2024. In that connection, they will consider recommendations as well as any amendments to the EU regulatory framework.

See ESMA’s press release here which also contains references to the progress reports.

Tags:  ESMASustainability

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