Stockholm (NordSIP) – In May 2022 the European Commission (EC) asked the three European Supervisory Authorities (ESAs) to help define and address greenwashing in the financial markets. Having produced an interim progress report in June 2023, the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) published their final report on 4 June 2024.
The report examines what National Competent Authorities (NCAs) in the EU member states have done so far to address the issue, and what plans they have for future improvements in greenwashing measures throughout the Sustainable Investment Value Chain (SIVC). Although instances of greenwashing do tend to generate significant media coverage, the ESAs observe that NCAs have so far relatively few such cases in their markets. The report considers the possibility that information flows may be inadequate and detection units under or poorly resourced. Alternatively, it may be that market participants are more conscious of the risks involved with overstating the sustainability credentials of their products and are therefore moderating their marketing claims.
A need for qualified staff and better data
The key areas for improvement that NCAs are focusing on are access to quality data and the need for specialised staff able to correctly interpret the information. They hope to remedy the situation through a dedicated sustainability-related recruitment drive and training of existing teams, often in collaboration with non-governmental organisations (NGOs). The NCAs are also turning to third party vendors to improve their access to relevant data. The ESMA supports efforts to establish common resources across the EU to lighten the burden on individual NCAs and supervisory bodies.
Commenting on the publication of the report ESMA Chair Verena Ross, said: “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. We will also continue to support NCAs, to enhance supervisory capacities in this area and invest in the tools needed to address data challenges.”
Ross also took the opportunity to remind all financial 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. While focusing on the need for specialist sustainability skills within supervisory bodies, the ESMA report also points out that broader existing EU legislation prohibits misleading information being used for marketing purposes.
Included in the proposed next steps is a request to the EC to reinforce the NCAs’ and ESMA’s mandates to help them effectively oversee industry benchmarks, promote retail investor education, and allow better access to essential data.
