European Supervisory Authorities Publish Final Reports on Greenwashing In Financial Sector

The European Supervisory Authorities have published their final reports on greenwashing in the financial sector. Each ESA provides a stocktake of the current supervisory response to greenwashing risks under its remit and notes that national competent authorities are already taking steps in the area of supervision of sustainability-related claims. The quantitative analysis of greenwashing in the EU shows a clear increase in the total number of potential cases across all sectors.

Each report provides recommendations for market participants, NCAs, the ESAs and the EC in relation to greenwashing. The recommendations include that market participants: (i) take all necessary steps to ensure that sustainability information provided is fair, clear, and not misleading; (ii) review and adapt their governance arrangements and internal processes to build safeguards against greenwashing, take a proactive approach in addressing data challenges, and consider the extent to which external verification and alignment with market guidance would support credibility of green or sustainable products and/or targets; and (iii) take a series of measures at both the entity level and the product level to ensure that sustainability claims are accurate, substantiated, up to date, that they fairly represent the institution’s overall profile or the profile of the product, and are presented in an understandable manner.

While the ESAs’ reports focus on the EU’s financial sector, they acknowledge that addressing greenwashing requires a global response, involving close cooperation among financial supervisors and the development of interoperable standards for sustainability disclosures. Building on the preliminary regulatory remediation actions identified in ESMA’s June 2023 progress report, ESMA will publish an opinion with views on how the EU regulatory framework for sustainable finance could further facilitate the investor’s journey.

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