The European Supervisory Authorities (ESAs) – the European Banking Authority (EBA), European Securities and Markets Authority (ESMA) and European Insurance and Occupational Pensions Authority (EIOPA) – have called on financial institutions and regulators to deepen their critical scrutiny of sustainability related claims and improve product disclosures to combat greenwashing.

Following two years of research, the trio today published their key findings and recommendations in tackling greenwashing.

Commenting on its report, markets watchdog ESMA said the supervision of sustainability-related claims had become a priority for national supervisors but that they “still face constraints on their resources, as well as on their access to expertise and to good quality data”.

Key recommendations from ESMA therefore include an increase of human resources and expertise, along with increased use of tools for greater access to data. In addition, the watchdog said the European Commission should ensure the legislative framework supports the financial sector’s access to data.

Following ESMA’s greenwashing risk assessment progress report published last year looking across the sustainable investment value chain, the group today proposed several mitigating methods to combat greenwashing, such as greater supervision of ESG disclosures and how ESG information is provided.

ESMA confirmed a joint statement from the ESA son the Sustainable Finance Disclosure Regulation (SFDR) is to be published next week.

Furthermore, EIOPA told IPE it had changed its original greenwashing recommendations in its draft opinion piece following criticism from the pension sector, which alleged it had not properly considered the nuances of the sector, warning it could lead to ‘greenhushing’.

“Effective and consistent supervision of sustainability-related claims is critical to investor protection and a trustworthy environment for ESG markets. With a risk-based approach in mind, ESMA has promoted EU-level common supervisory actions across the sustainable investment value chain and will continue to foster convergent and effective supervision,” said ESMA chair, Verena Ross.

“I would also like to remind all market players of their responsibility to avoid making unsubstantiated sustainability claims and to communicate any sustainability-related information in a manner that is fair, clear and not misleading,”

Trends and regulatory frameworks

Following on from the Commission’s request to look at greenwashing risks in the sector, the ESAs found an increase of greenwashing in the EU and globally, indicating growing awareness and scrutiny of these issues.

As such, the final report provides recommendations to policymakers, supervisors, and institutions on how to address greenwashing risks through market practices and regulatory frameworks.

While primarily focusing on the EU’s financial sector, the authorities acknowledged that addressing greenwashing requires a global response, involving close cooperation among financial supervisors and the development of interoperable standards for sustainability disclosures.

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