ESAs declare war on greenwashing: How the EU is protecting financial sustainability


In a recent post by Novatus Advisory, the company outlined the European Supervisory Authorities understanding on greenwashing.

The European Supervisory Authorities (ESAs), a collective comprising the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA), issued their Progress Reports on Greenwashing in the financial sector on 1st June 2023.

These documents outline a shared high-level understanding of greenwashing, applicable to all players in their supervised sectors. This includes banking, insurance and pensions, and financial markets, reflecting our recent investigation on the topic.

Greenwashing, according to the ESAs, is a practice where sustainability-related communications do not honestly represent the underlying sustainability profile of a company, financial product, or service. This can mislead consumers, investors, or other market participants. The European Commission expands this to “sustainability claims,” encompassing social and governance-related claims, in line with the EU’s integrated legislative approach.

The ESAs stress that misleading sustainability-related claims can emerge either intentionally or unintentionally, and can apply to entities and products within or beyond the scope of EU regulations. Misleading claims can pertain to all key aspects of a product’s or entity’s sustainability profile, including governance aspects, sustainability strategy, targets, metrics, or impact claims. Risk areas, greenwashing causes, and preliminary remediation actions are highlighted in the findings.

The report suggests preliminary remediation actions such as reinforcing the regulatory framework, improving firms’ governance and IT systems, ensuring credible sustainability data, and introducing a labelling scheme for sustainable financial products. These measures are aimed at ensuring a balanced and substantiated communication of sustainability information.

In their fight against greenwashing, the National Competent Authorities (NCAs) and the ESAs are committed to meeting stakeholder expectations. They aim to safeguard consumer and investor interests, maintain market integrity, and foster a reliable environment for sustainable finance. The shared understanding of greenwashing between the ESAs marks a significant stride in mitigating this damaging practice within the financial sector.

In May 2024, the ESAs plan to release the final greenwashing reports, potentially featuring changes to the EU regulatory framework. Meanwhile, ESMA is broadening its monitoring framework to mitigate greenwashing risks, supporting NCAs who handle greenwashing-related complaints.

Read the full post here.

Copyright © 2023 RegTech Analyst

Enjoyed the story? 

Subscribe to our weekly RegTech newsletter and get the latest industry news & research

Copyright © 2018 RegTech Analyst


The following investor(s) were tagged in this article.