Responding to a request for advice from the European Commission, the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA) presented, on Thursday 1 June, preliminary recommendations for strengthening the regulatory framework to limit greenwashing by financial players.
From the viewpoint of these three authorities, ‘greenwashing’ is a practice in which sustainability-related statements, actions or communications do not clearly and fairly reflect the underlying sustainability profile of a financial actor, product or service. Intentional or not, this practice can mislead consumers, investors or other market players.
EBA. According to the EBA, “the materiality of greenwashing is currently perceived as low or medium for banks, and medium or high for investment firms, but is expected to increase in the future”. And the European Banking Authority has identified methodological and data collection “challenges” to the proper application of EU law (unfair commercial practices, SFDR, European taxonomy).
See the EBA report: https://aeur.eu/f/77r
ESMA. The European Securities and Markets Authority stresses the importance of improving the consistency and effectiveness of the regulatory framework. In the Authority’s opinion, increasing the transparency of data methodologies on environmental, social and governance (ESG) risks, clarifying the use and calculation of estimates and thus improving external auditing would help to improve the reliability and comprehensiveness of sustainability data.
In order to increase the participation of retail investors, the introduction of a reliable labelling scheme for sustainable financial products would be beneficial, as would efforts to fill the gaps in knowledge of ESG risks.
See the ESMA report: https://aeur.eu/f/77s
EIOPA. The European Insurance and Occupational Pensions Authority notes that 17 national supervisors report a lack of resources to identify ‘greenwashing’ practices. It states that three national competent authorities have detected at least one case of greenwashing for insurance and retirement savings products and that five others are currently investigating potential cases.
While most national supervisors consider the regulatory framework to be adequate, EIOPA notes “inconsistencies and gaps”, such as differing practices for calculating the proportion of sustainable investments and/or the large discretion given to financial players in taking account of indicators that deviate from the ‘do no significant harm’ principle (Article 2 of the SFDR).
See the EIOPA report: https://aeur.eu/f/77v (Original version in French by Mathieu Bion)