The European supervisory authorities for financial markets (ESMA), banking (EBA) and insurance (EIOPA) analyse the extent of greenwashing and suggest ways to better understand and minimise this phenomenon in order to ensure investor and consumer confidence, in specific reports published on Tuesday 4 June.
In its report, the European Securities and Markets Authority (ESMA) notes that national competent authorities (NCAs) are already prioritising the supervision of sustainability-related claims. To date, these authorities have only detected a limited number of actual or potential cases of greenwashing. There are many reasons for this: - the low level of signals, for example, complaints that reach supervisors; - a lack of financial knowledge; - constraints on resources; - NCAs’ expertise in detection; - the lack of quality data.
In response to the need for specialised knowledge, national authorities and ESMA have begun to build capacity and expertise in sustainability, even though most of them consider their resources to be insufficient.
In addition to deepening the work of the NCAs and their supervision, ESMA has invited the European Commission to strengthen their mandates in certain areas, in particular with regard to the benchmarks used and raising awareness of financial education for retail investors. The Commission should also ensure that the legislative framework supports supervisors’ access to data.
Read the report: https://aeur.eu/f/cjf
In its report, the European Banking Authority (EBA) notes a net increase in greenwashing in all market segments within its remit, amounting to 26.1% at EU level between 2022 and 2023.
Stressing the importance of tackling greenwashing to maintain investor and consumer confidence, the European authority is making recommendations to financial institutions both at entity level and at the level of financial products placed on the market.
All financial institutions should establish credible strategies and plans to implement their sustainability commitments and integrate greenwashing into their operational and reputational risk management. At the level of a financial product, a financial institution should establish precise criteria, definitions and indicators for each product labelled ‘sustainable’. In arranging bank loans, it should also cooperate closely with the counterparties responsible for the underlying assets.
On the regulatory front, the most effective action, according to the EBA, is to focus on finalising and implementing the regulatory initiatives currently underway. Regulatory certainty will need to be ensured, taking into account both legislation on misleading claims (UCPD, MiFID II, MCD, CCD I and II) and the framework governing sustainable finance (EU taxonomy, CSRD, EuGB, ESG ratings). The authority also recommended strengthening the regulatory framework by extending it to less regulated aspects, such as transition finance and sustainability-linked loans.
See the EBA report: https://aeur.eu/f/cju
Despite the increased focus between 2023 and 2024 by national competent authorities on supervision linked to sustainability and greenwashing, the European Insurance and Occupational Pensions Authority (EIOPA) believes that progress is still needed to enforce these requirements.
EIOPA recommends a common approach to supervision, in particular by encouraging national authorities to adopt the definition of greenwashing used by the three European supervisory authorities.
The European authority proposes carrying out mystery shopping exercises across the EU and taking enforcement action against offending service providers. It recommends four key principles to prevent greenwashing (accuracy, clarity, accessibility and up-to-dateness) and suggests that NCAs take these principles into account when assessing companies’ sustainability claims.
EIOPA points out that the current regulatory framework does not set explicit standards for which non-life insurance products can claim sustainability features and which cannot. It also laments that most consumers do not understand the meaning of ‘taxonomy-aligned investments’, ‘sustainable investments’ and ‘consideration of principal adverse impact on sustainability factors’, i.e. the three sustainability preference criteria of the Insurance Distribution Directive (2016/97).
Finally, EIOPA recommends a sustainable investment framework that works for consumers and providers of insurance and pension services.
Link to the EIOPA report: https://aeur.eu/f/cji (Original version in French by Anne Damiani, Bernard Denuit and Mathieu Bion)