Stockholm (NordSIP) – Last week NordSIP sought to draw urgent attention to the call for evidence (CfE) on greenwashing made by three European Supervisory Authorities (ESAs), the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA). On 16 January the European Fund and Asset Management Association (EFAMA) published its response to the CfE. EFAMA is the umbrella organisation that represents the EUR 31 trillion European investment management industry.
EFAMA begins by expressing its irritation at the timing of the project, which was open for submission from 15 November 2022 until the hastily extended deadline of 16 January 2023. The response states that “more time would have been required to provide more developed responses to this call for evidence, given the importance of the topic and its inherent technicalities.” Nevertheless, EFAMA decided to respond despite the limitations of the holiday period as it did not want its members left out of the equation to potentially suffer “unintended consequences rendering Financial Market Participants (FMPs) permanently accountable for lack of available data and lack of legal or regulatory clarity, all outside of the control of the fund industry.”
At the heart of its response, EFAMA believes that gross negligence aside, genuine greenwashing can only be intentional and must incorporate the following two criteria:
- Knowingly misrepresenting sustainability-related practices or features of a product.
- With the objective or intention to mislead or induce the receiver of the sustainability claim.
EFAMA believes that this intentionality is fundamental to a correct definition of greenwashing and makes the point that market and regulatory conditions need to be such that genuine mistakes are less likely to be made by FMPs. The organisation believes that before drafting any new legislation, existing commercial laws and sustainability frameworks should be scrutinised and made consistent and harmonised across the EU and beyond. It also states that its members should neither be held liable for mistakes and inaccuracies in third party ratings and data providers, nor for deliberate attempts to simplify the communication of complex ESG strategies for a retail audience. It also seeks to protect its members against accusations of greenwashing while the regulatory authorities themselves are still working on defining their Sustainable Finance framework.
The CfE questionnaire presents the idea of FMPs playing the roles of greenwashing “triggers, spreaders and receivers.” EFAMA seeks to emphasis that providing proper due diligence has been carried out asset management firms cannot be liable for false claims made by portfolio companies or external data providers. The organisation believes that “perceived” greenwashing can originate from one or more of the following factors:
- A rapidly evolving regulatory framework.
- Different interpretations of the regulatory framework.
- Lack of reliable data.
- Financial literacy.
- Mismatch between retail investors’ expectations and market participants’ ability to deliver real-world impact.
In its response EFAMA agrees that greenwashing leads to financial, reputational and legal risks, as well as a potential loss of confidence on the part of investors in sustainability-related products. Nevertheless, the organisation stresses the importance of clarity and consistency in the regulatory environment to avoid FMPs getting tripped up. While supporting the aims of the CfE, EFAMA warns of the risk of duplication that could further complicate the regulatory framework and expose its members to inadvertent greenwashing. The ESAs’ CfE was originally prompted by the European Commission, which one would expect will use the results to inform its own Sustainable Finance framework.