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ESAs present a common understanding of greenwashing and warn of related risks

The European Supervisory Authorities (EBA, ESMA and EIOPA) have published their progress reports to the European Commission on greenwashing in the financial sector. The reports follow a request for input from the Commission in May 2022, which requested each ESA to provide input on the phenomenon of greenwashing.

In the reports, the ESAs developed a common high-level understanding that greenwashing is ‘a practice whereby 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 agreed that sustainability-related misleading claims can occur and spread either intentionally or unintentionally and that greenwashing does not require investors being actually harmed.

In the reports, the ESAs identify the high-risk areas within their sectors that are exposed to greenwashing and set out preliminary remediation actions to help firms prevent and mitigate greenwashing. At this time, the ESAs have not set out their preferred legal forms for implementing potential changes to the EU regulatory framework or mention any specific timeframes for this.

Highlights from the EBA report

The EBA report focuses mostly on the banking sector but also covers investment firms and payment service providers. The materiality of greenwashing risk is currently perceived to be low or medium for banks, and medium or high for investment firms, but is expected to increase in the future. Pledges about future ESG performance are considered to be the most prone to greenwashing, followed by ESG strategy and objectives of entities, as well as ESG labels and certificates.

Finally, the EBA finds that several elements in the current or planned regulation and supervision may contribute to tackling greenwashing. These include the rules that prohibit unfair communication and marketing, several pieces of the EU sustainable finance framework, such as the EU taxonomy and ESG disclosures, and a set of provisions in EBA Guidelines. There are, however, challenges to ensure that these tools are properly implemented to address greenwashing, such as adequate data and methodologies.

Highlights from the ESMA report

The ESMA report assesses which areas of the sustainable investment value chain (SIVC) are more exposed to the risk of greenwashing. The findings show that misleading claims may relate to all key aspects of the sustainability profile of a product or an entity such as ESG governance and resources; ESG strategy, policies and credentials; performance metrics and targets; and sustainability 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.

The report looks at the causes of greenwashing noting that it is the result of multiple inter-related drivers. Market participants across the SIVC face challenges in implementing 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 highlighting the need to build sustainability expertise.

To mitigate greenwashing risks, ESMA suggests that 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.

Highlights from the EIOPA report

The EIOPA report provides initial views on greenwashing from an insurance and pension perspective. EIOPA finds that greenwashing can manifest (to varying extents) as part of the broader set of conduct risks at all stages of the insurance and pensions lifecycles. The report presents examples to show how greenwashing manifests itself in practice.

Next steps

Responses to the Call for Evidence on greenwashing will be published in the following weeks.

The ESAs will publish their final reports on greenwashing in May 2024 and will propose recommendations on possible change to EU rules.

"The outcome of the quantitative analysis of the greenwashing phenomenon in the EU since 2012 shows a clear increase in the total number of potential cases of greenwashing across all sectors, including EU banks."


banks & insurers, asset managers & funds, greenwashing, sustainable finance, pensions, eu-wide, blog posts