ESG – ESAs publishes call for evidence on greenwashing

On 15 November 2022, the European Supervisory Authorities (ESAs) (the EBA, EIOPA and ESMA) published a call for evidence (CfE) seeking input on potential greenwashing practices in the EU financial sector.

What’s the background?

On 23 May 2022, the ESA received a request for input from the European Commission relating to greenwashing risks and supervision of sustainable finance policies.

In order to meet this request, the CfE states that the ESAs’ work will focus on the following main areas:

• clearly defining greenwashing and better understanding the phenomenon, its scale and potential related risks;
• taking stock of the implementation of relevant sustainable finance legislation within the remit of the ESAs and identifying early challenges for stakeholders and regulators;
• mapping out various aspects of the supervisory response and assessing its adequacy from both a legal and a practical standpoint; and
• issuing recommendations based on findings within the areas referred to above.

What is the CfE asking for?

The CfE is requesting:

• views across the financial sector on how to understand greenwashing and the main drivers of greenwashing;
• examples of potential greenwashing practices across the EU financial sector relevant to various segments of the sustainable investment value chain and of the product lifecycle;
• evidence on potential greenwashing practices within and outside the scope of current EU sustainable finance legislation; and
• any available data to help the ESAs gain a concrete sense of the scale of greenwashing and identify areas of high greenwashing risks.

What’s next?

The deadline for responses is 10 January 2023, after which a progress report is expected by the end of May 2023 and a final report by end of May 2024.

What’s the wider context?

At the EU level, regulators have already signalled a willingness to take enforcement action in cases of greenwashing, under existing EU ESG rules. See for example ESMA’s June 2022 supervisory briefing, which confirmed that national regulators should take enforcement action for breaches of SFDR in relation to cases of greenwashing. This includes where disclosures are severely misleading - particularly where there is a significant discrepancy between what a financial product actually invests in and what has been disclosed to investors in pre-contractual disclosure documentation.

Beyond the EU, other national regulators and supervisory bodies have taken action or introduced new policies to counter greenwashing, including the US SEC, the UK FCA, and IOSCO.