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| 8 minutes read

EU: ESAs unveil their findings on greenwashing – calls for improved market practice on sustainability-related claims

The European Supervisory Authorities (EBA, ESMA and EIOPA – together, the ESAs) have published their Final Reports to the European Commission on greenwashing in the financial sector.  These Final Reports, together with their June 2023 Progress Reports (see our previous blog post here), which set out the ESA’s common high level understanding of greenwashing (reiterated in the final reports) and map areas more exposed to greenwashing risks across the Sustainable Investment Value Chain (SIVC), serve as a response to the European Commission’s 2022 request for input related to greenwashing risks and the supervision of sustainable finance policies.

High level takeaways


A running theme across the ESAs reports is the focus on ESG disclosures – ESMA highlights this topic as a Union Strategic Supervisory Priority that will remain in place over the coming years, the EBA focuses on, among other things, the clarity and substantiation of sustainability claims and  forward looking statements, and EIOPA sees room for improvement (particularly regarding product-level website disclosures).  The warning for financial service firms in the EU is that supervision of entity and product disclosures will be intensifying, with a bottom-up focus, similar to the UK FCA’s approach, on consumer and investor protection.

Extensive toolkit

There is no expectation at this stage that the ESAs common understanding of greenwashing will be codified in legislation - not least given the substantial legislative rewrite that this would entail.  Instead, the emphasis is on the existing extensive supervisory and enforcement arsenal national EU regulators already have at their disposal. 

Powers of supervision and sanction in respect of greenwashing-related infringements already exist across an array of legislative frameworks (these are mapped in a useful Annex 2 to the ESMA Final Report), from longstanding rules in the likes of MiFID II, Mortgage Credit Directive and the Consumer Credit Directive  (which each contain requirements for information provided to clients to be “fair, clear and not misleading”), the Market Abuse Regulation (in scope, for example, is disclosure of false or misleading sustainability-related claims) and the Unfair Commercial Practices Directive to sustainability-specific frameworks like the Taxonomy Regulation, CSRD and the SFDR. There is a reminder of actions already brought and capable of being brought using these frameworks, (and there are parallels here with the approach in the UK – the FCA’s AGR and accompanying non-handbook guidance are not intended to create additional obligations on top of the existing legislative framework, the expectation instead being that the AGR and guidance will prove explanatory for the sustainability space).

Looking forward, the ESA’s focus is on supporting supervisory convergence within the existing framework as a key foundation to addressing greenwashing concerns, as opposed to creating new obligations. 

Enforcements so far

The EBA reports that: “the quantitative analysis of the greenwashing phenomenon in the EU shows a clear increase in the total number of potential cases of greenwashing across all sectors, including EU banks from 2012 to 2023. The total number of alleged cases continued to increase in 2023 (+21.1% in all regions and +26.1% in the EU compared to 2022). Greenwashing controversies remain amplified towards EU financial and banking institutions.”

Nonetheless there has been a low incidence of formal enforcement decisions so far. In part this is explained by NCAs addressing irregularities related to sustainability related claims in their ongoing supervisory work without the need to resort to enforcement action.  The regulatory framework is also new and complex (and several measures are still in the early stages of implementation), and NCAs have generally favoured a gradual approach to implementation – the ESAs too recognise in their reports that supervision will be gradually enhanced, as NCA’s work in this space gains in maturity. 

However, a bigger concern is the challenge that NCAs face in identifying greenwashing where the regulatory framework is unclear or ambiguous. An example flagged here is the unclear definition of ‘sustainable investment’ under Article 2 (17) of the SFDR).  There is also a focus on how the use of processes like complaints handling can be improved to shed light on instances of greenwashing. Whilst we can expect the NCAs to increase their own supervisory and enforcement toolkits, we can also expect a scrutiny on the use of those tools that regulated firms have to enable information about greenwashing to surface. 

The principles-based approach of the FCA’s AGR opens up similar difficulties and stakeholders have grappled with scoping questions, as well as questions around how the AGR interacts with existing rules.  Action points for the ESAs in this regard include the facilitation of knowledge sharing between NCAs on best-practice supervisory approaches, the development of additional guidance where relevant, alongside exploration of the development and deployment of new tools to help NCAs develop their own capabilities.

Supervisory approach

In their respective reports, each ESA provides a stock-take of the current supervisory response to greenwashing risks under their remit and identifies the steps that NCAs are already taking in the supervision of sustainability-related claims. In addition, the ESAs provide a forward-looking view of how sustainability-related supervision can be gradually enhanced in coming years.  The key takeaway for NCAs is the need to enhance human resources and expertise, to further integrate greenwashing risks into their risk monitoring frameworks (through product lifecycles, including entity and product level stages), and, as the supervisory framework develops and embeds, to gradually deepen their critical scrutiny of sustainability related claims. 

Where else can we expect to see more, whether from the ESAs, or through enhancements to the legislative framework 

Assessment of SFDR to come

This is not the last word – ESMA notes that its response to the fourth component of the EC request on regulatory improvements will be completed via a separate Opinion by ESMA to the EC, building on preliminary regulatory remediation actions identified in the Progress Report.  This ESMA opinion it says will also build on a “soon-to-be-published” joint opinion of the ESAs on the assessment of the SFDR (which the EBA says will outline recommendations to improve the framework and address greenwashing and mis-selling risks).  No specific date has been indicated, but the expectation is that the joint opinion at least will land imminently. 

Scrutiny on funds and investment management sector

ESMA also points to a new indicator it is in the process of developing, intended to help assess certain aspects of the quality of sustainability-related claims disclosed by funds and hence greenwashing risks in the funds sector. ESMA is exploring different ways of quantifying this risk including by looking at the consistency of sustainability-related claims across fund documents, unsubstantiated use of vague ESG-related language by fund managers, and alignment between a fund name and its portfolio composition. This focus follows on from an assessment that all areas of an investment manager’s operations (e.g. in relation to governance, strategy, and metrics/targets) present high exposures to greenwashing risk.

Future enhancements to the Benchmarks Regulation?

NCAs and ESMA report not having a clear mandate under the BMR to supervise greenwashing occurrences as it does not refer to “clear, fair and non-misleading” information (and note there “is no BMR mandate to enforce or sanction greenwashing in the name of the benchmark or the related marketing materials”), it is suggested this could be addressed as part of the ongoing BMR review . 

Insurance and Pensions sector?

EIOPA points to the need to strengthen the current sustainability related framework by providing clear sustainability-related standards for non-life products to enable a consistent approach.  EIOPA also reminds the Commission of its earlier technical advice to the Commission on the review of IOPRP II (in the context of the occupational pensions sector), it also points to potential enhancements that might be needed in the context of the IDD. 

Focus on the connection between litigation risk and financial stability

the EBA paper focuses on prudential risk management of ESG risk and financial stability, thus drawing out the links between ESG risk and financial stability.  Particular attention is paid to the interrelation between ESG litigation risk and financial stability. The EBA cites an ECB paper on net zero commitments made by the world’s largest banks, commenting that: 

“…the legal consequences of greenwashing can be severe. In addition to reputational repercussions that can negatively affect investors’ and consumers’ views, it can have multiple legal consequences, and courts in many jurisdictions are increasingly open to rule in favour of shareholders and NGOs. The [ECB] paper underlines the impact on banks’ risk management and governance, because, in addition to increasing reputational risk, greenwashing allegations can significantly affect litigation risk. This is important also from the prudential perspective, even if the litigation is a threat only. The paper refers to a recent LSE study where a causal link was found between climate litigation and stock prices.”

Suggestions are made to look at the way ESG litigation risk is accounted for, e.g. through the SREP and other mechanisms.

Key takeaways from the three Final Reports 

A - ESMA’s final report

ESMA reiterates the remediation actions for market participants to mitigate greenwashing risks set out in its Progress Report, including the need to:

  • Substantiate sustainability-related claims and communicate sustainability information in a way that is fair, clear, and not misleading. To live up to that responsibility, market participants should consider high-risk areas identified by ESMA’s Progress Report.
  • Invest in building capacities and expertise, IT systems fit for managing the new flow of sustainability information.
  • Implement monitoring processes and report regularly on progress, where relevant. 
  • Further integrate ESG risks into risk management systems and controls. 
  • Adapt governance structures and processes to mitigate greenwashing risks (e.g., committees and guidance). 
  • Fulfil due diligence responsibilities on ESG data with the same level of ambition and care as for financial information. 
  • Where relevant, increase the recourse to external verification. 
  • Enhance transparency regarding ESG data methodologies, the use of estimates.
  • Contribute to addressing financial and sustainability literacy gaps among retail investors (e.g., through providing contextual disclosures). 
  • Exercise caution with the use of aspirational language in advertising.

B - EBA’s final report

Highlighted is the need for institutions to:

  • Take all necessary steps to ensure that sustainability information provided is fair, clear, and not misleading. This includes observing key principles for sustainability claims to be accurate, substantiated, up to date, fairly representative of the institution’s overall profile or the profile of the product, and presented in an understandable manner. 
  • Review and adapt their governance arrangements and internal processes to build safeguards against greenwashing, take a proactive approach in addressing data challenges, and consider the extent to which external verification and alignment with market guidance would support credibility of green or sustainable products and/or targets. 
  • (at the entity level) Substantiate forward-looking sustainability commitments such as net-zero pledges with credible plans and strategies, provide clear and granular information on their green and sustainable finance targets, and integrate greenwashing-related financial risks as part of their management of conduct, operational and reputational risks. 
  • (at the product level) Establish and report clear criteria, definitions and indicators for products and/or services labelled as green or sustainable. 
  • Apply rigor and closely engage with counterparties in designing sustainability-linked products in particular sustainability-linked loans.

C – EIOPA’s final report and opinion on sustainability claims and greenwashing

Alongside its report, EIOPA has published its opinion on sustainability claims and greenwashing, which sets out four key principles that NCAs should consider when probing undertakings’ sustainability claims:

  • Principle 1: Sustainability claims made by a provider should be accurate, precise, and should fairly represent the provider’s profile, and/or the profile of its product(s).
  • Principle 2: Sustainability claims should be substantiated with clear reasoning, facts and processes. 
  • Principle 3: Sustainability claims and their substantiation should be accessible by the targeted stakeholders.
  • Principle 4: Sustainability claims should be kept up-to-date, and any material change should be disclosed in a timely manner and with a clear rationale.

The final report offers practical guidance on applying these principles, with examples of good and bad practices throughout the insurance and pension lifecycle.


ESMA’s final report is here and press release here.

EBA’s final report is here and press release here.

EIOPA’s final report is here and press release here.


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