The European Fund and Asset Management Association (EFAMA) has called for the European Supervisory Authorities’ (ESAs) work on greenwashing to differentiate between misleading with intent and uncertainty on regulations.
Last November the three ESAs – European Banking Authority (EBA), European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pension Authority (EIOPA) –Â published a Call for Evidence on greenwashing to gather input from stakeholders on how to understand the key features, drivers and risks associated with greenwashing and to collect examples of potential greenwashing practices.
In its response, EFAMA stated that all market actors were concerned about the risk of greenwashing amid an environment with unclear definitions at EU level on key sustainable finance concepts, and a lack of complete, comparable and transparent environment, social and governance (ESG) data.
EFAMA suggested that greenwashing assessments should consist of two components: knowingly misrepresenting sustainability-related practices or features of a product; and the objective or intention to mislead or induce the receiver of the sustainability claim.
It stressed that the core attributes of greenwashing need to be understood to tackle misleading practices, which would therefore strengthen the integrity and effectiveness of EU financial markets.
It noted there may be still be greenwashing in cases of gross negligence on the financial market participants making the claim where there was no intention to mislead or induce the receiver of the sustainability claim.
The association noted that significant areas of financial institution supervision already addressed several aspects of greenwashing, and a a result, any current regulatory gaps should be identified first before proposing new legislation or guidance.
It also emphasised the need for an aligned and consistent approach when addressing greenwashing risks in the financial sector to reduce confusion and the risk of harmful market fragmentation.
“Intentionally misleading behaviour relating to sustainable investments should not be tolerated, in the same way that other misleading practices regarding risk or performance are not tolerated,” said EFAMA regulatory policy adviser, Anyve Arakelijan.
She added, “However, considering the current degree of regulatory uncertainty and ongoing evolution, we must be careful to not apply the term greenwashing too broadly. “Strengthening the understanding of what constitutes greenwashing and having harmonised supervisory action to address this risk is crucial.
Otherwise, investor confidence in sustainable finance could be severely undermined, threatening efforts to transition to a more sustainable economy.”
