Sustainable Biz Magazine - Magazine - Page 18
ESAs put forward common understanding
of greenwashing and warn on risks
T
he European Supervisory Authorities
(EBA, EIOPA and ESMA – ESAs)
have published their Progress
Reports on Greenwashing in the financial
sector.
In these reports, the ESAs put forward
a common high-level understanding
of greenwashing applicable to market
participants across their respective remits
– banking, insurance and pensions and
financial markets.
The ESAs understand 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.
The ESAs also highlight that sustainabilityrelated misleading claims can occur
and spread either intentionally or
unintentionally and in relation to entities
and products that are either within or
outside the remit of the EU regulatory
framework.
The National Competent Authorities
(NCAs) and the ESAs are, therefore,
working to meet expectations from
stakeholders to ensure consumer and
investor protection, support market integrity
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and maintain a trusted environment for
sustainable finance. Given the integrated
nature of the financial system, the ESAs
work in a coordinated manner to address
greenwashing.
The ESMA Progress Report helps to better
understand greenwashing and provides
market participants and regulators with a
shared reference point in dealing with this
phenomenon.
In the report, ESMA assesses which areas
of the sustainable investment value chain
(SIVC) are more exposed to the risk of
greenwashing. This assessment is meant to
help market participants in preventing and
mitigating greenwashing, and to support
ESMA and NCAs in prioritising supervisory
actions and regulatory intervention.
The findings show that misleading
claims may relate to all key aspects of
the sustainability profile of a product or
an entity – from governance aspects to
sustainability strategy, targets and metrics
or claims about impact. The report also
provides sector-specific assessments for
key sectors under ESMA’s remit such as
issuers, investment managers, benchmark
administrators and investment service
providers.
Greenwashing is the result of multiple interrelated drivers. Market participants across
the SIVC face challenges in implementing
S USTAI N AB L E B I Z MAGAZINE
NOVEMBER 2023
the necessary governance processes and
tools that support high-quality sustainability
disclosures and transition efforts. In this
context, market participants also have
difficulties in producing and accessing
relevant, high-quality sustainability data.
Furthermore, a fast-moving regulatory
framework has created implementation
challenges for both market participants and
for NCAs and highlighted the need to build
sustainability expertise.
To mitigate greenwashing risks, market
participants across the SIVC have to live up
to their responsibility to make substantiated
claims and communicate on sustainability
in a balanced manner. Comprehensibility
of sustainability disclosures to retail
investors needs to be improved, including
by establishing a reliable and well-designed
labelling scheme for financial products.
Finally, the regulatory framework needs
to gain in maturity, key concepts need to
be clarified and sustainability impact or
engagement better integrated.
This report lays the ground for mitigating
greenwashing risks in the future, throughout
the SIVC and in key sectors under ESMA’s
remit.
The ESAs will publish final greenwashing
reports in May 2024 and will consider final
recommendations, including on possible
changes to the EU regulatory framework.