The final reports of ESMA, EBA and EIOPA converge on a shared definition of greenwashing and identify priority areas where supervision can be improved. Weaknesses in the capacities of national competent authorities are the weak link
The new EU legislation against greenwashing in the financial sector is satisfactory
More collaboration between financial supervisors. Make sustainability disclosure standards more interoperable. Provide more tools and expertise specifically aimed at combating greenwashing to national competent authorities. They must have a broader mandate, especially to improve access to data. These are the main recommendations of the three European Supervisory Authorities (ESAs) to limit greenwashing in the financial sector.
A shared Definition of greenwashing in the Financial Sector
In their final reports, requested by the EU Commission in 2022 and published on 4 June, the European Securities and Markets Authority (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) achieve a shared definition of what constitutes greenwashing in the financial sector:
“A practice in which statements, declarations, actions or communications relating to sustainability do not clearly and fairly reflect the sustainability profile of an entity, financial product or financial service. This practice could be misleading for consumers, investors or other market participants“.
The EU takes a decisive step towards the anti-greenwashing directive
Greenwashing on the rise: +26% in 2023
The three reports present the state of the art of the initiatives and the soundness of the regulatory frameworks in force and in the process of being approved, which aim to strengthen the credibility and coherence of the sustainability profiles of financial products and services. An action more and more priority in the light of the data supplied from the EBA. From a quantitative analysis, in fact, emerges a clear trend to increase greenwashing practices in all sectors. The total number of cases continued to increase in 2023, marking a +26.1% compared to the previous year only in EU countries.
“Reputational and operational risks continue to be considered the most affected by greenwashing. This is in line with the observation that the risk of litigation arising from greenwashing has been increasing in recent years,” the European Banking Authority stresses.
Nevertheless, the three authorities agree that the new EU regulatory framework against greenwashing in the financial sector, if fully implemented, is sufficient to reverse the trend. Detail attention will have to be given to the implementation of the directive EU on business due diligence (CSDDD), that it will come into force shortly and to which it will have to align in 2027-2029, and the next tranche of sectoral sustainability standards under the EU Corporate Sustainability Reporting Directive (CSRD).
