ESAs call for enhanced supervision and improved market practice on sustainability-related claims

See ESMA, EBA, and EIOPA reports

The European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) today published their final Reports on Greenwashing in the financial sector.

ESAs coordinated approach on greenwashing risks

In their respective reports the ESAs reiterate their common high-level understanding of greenwashing as a practice whereby sustainability-related statements, declarations, actions, or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product, or financial services. This practice may be misleading to consumers, investors, or other market participants. The ESAs stress again that financial market players have a responsibility to provide sustainability information that is fair, clear, and not misleading.

Each ESA provides a stocktake of the current supervisory response to greenwashing risks under its remit and notes that competent authorities (CAs) are already taking steps in the area of supervision of sustainability-related claims. In addition, the ESAs provide a forward-looking view of how sustainability-related supervision can be gradually enhanced in coming years.

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.

Highlights from the EBA Final Report

The EBA final Report provides an overview of greenwashing risk in the banking sector and its impact on banks, investment firms and payment service providers, with a focus on the changes during the last year. It also provides recommendations to institutions, supervisors, and policymakers.

The outcome of the quantitative analysis of greenwashing shows a clear increase in this trend across all sectors, including by EU banks. The total number of alleged cases continued to increase in 2023 (+21.1% in all regions and +26.1% in the EU compared to 2022).

The final Report investigates the actual and potential alleged greenwashing occurrences as reported by the competent authorities and provides updates on the adverse impact that greenwashing can have on institutions and consumers. Reputational and operational risks continue to be considered most impacted by greenwashing. This is in line with the observation that litigation risk resulting from greenwashing has been in a rising trend in the last years.

As institutions are expanding their offering of sustainable finance products and adapting their business models to meet challenges in relation to the transition towards a more sustainable economy, addressing greenwashing is key to provide confidence in the market and to maintain the trust of investors and consumers.

At a legislative and regulatory level, the EBA considers that the existing framework already provides key foundations to address greenwashing in the banking sector. Therefore, in the short-term, priority should be given to finalising the existing and planned initiatives, and to supporting a robust implementation of the full set of new regulations. Efforts to address challenges related to data, usability, consistency, and international interoperability should be further pursued.

The EBA recommends that institutions 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.

The EBA recommends that competent authorities pursue their planned and on-going efforts and activities to identify and monitor greenwashing risk within the remit of their respective prudential supervision and/or conduct supervision mandate.

Note to the editors

• ESMA36-287652198-2699 ESMA Final Report on Greenwashing – Response to the European Commission’s request for input on “greenwashing risks and the supervision of sustainable finance policies”
• EBA Final Report on Greenwashing
• EIOPA Final Report on Greenwashing
• Last year’s progress reports came as an initial response to the Request for input related to greenwashing risks and the supervision of sustainable finance policies sent by European Commission to the three ESAs. The ESMA Progress Report published on 1st June 2023 contained the common ESAs’ high-level understanding of greenwashing and identified areas more exposed to greenwashing risks across the Sustainable Investment Value Chain and the drivers of greenwashing risks.