In a response to the European Supervisory Authorities’ (ESAs’) recent consultation on greenwashing which closes today, EFAMA has responded by stating that the core attributes of greenwashing need to be understood to address misleading practices, and thereby strengthen the integrity and effectiveness of EU capital markets.

In an environment with unclear definitions at EU level on key sustainable finance concepts, as well as a lack of complete, comparable and transparent ESG data, all market actors are concerned about the risk of greenwashing, the association stated.

EFAMA highlighted that greenwashing assessments should consist of two components:

  1. knowingly misrepresenting sustainability-related practices or features of a product;
  2. with the objective or intention to mislead or induce the receiver of the sustainability claim.

Where there is no intention to mislead or induce the receiver of the sustainability claim, there may still be greenwashing in cases of gross negligence by the financial market participants making the claim, it said.

Anyve Arakelijan, regulatory policy adviser at EFAMA, said: “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.”

She noted, however, that considering the current degree of regulatory uncertainty and ongoing evolution, “we must be careful to not apply the term greenwashing too broadly”.

Arakelijan added: “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.”

Significant areas of financial institution supervision already address numerous greenwashing aspects, therefore any current regulatory gaps should first be identified before proposing new legislation or guidance.

EFAMA also noted the need for an aligned and consistent approach when addressing greenwashing risks in the financial sector across Europe and internationally, to reduce confusion and the risk of harmful market fragmentation.

Victor Van Hoorn, managing director and head of the ICI Global Brussels office believes there are several key issues at play in the so-called greenwashing debate – potential misconduct, investor education and different opinions about the future.

“Policymakers need to be very clear about which problems they are trying to address and finding the right solutions to these. We agree that willfully misleading disclosures can undermine investor trust in sustainable finance,” he explained.

Van Hoorn said: “Regulators already have the tools to deal with this. Where there is compliance with regulations, but investors are confused, the answer is better education and disclosure. Codifying one word, covering very different issues, seems likely to lead to no solution.”

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