Our supervisors are busy in the ESG field, as demonstrated by our recent news updates: ESMA publishes final guidelines on minimum thresholds for ESG and Sustainability-related fund names, AFM SFDR survey results, MiFID/IDD survey results: Assist investors in finding sustainable investment opportunities.
On June 4th, 2024 new reports have been published: the ESAs call for enhanced supervision and improved market practice on sustainability-related claims.
In their respective reports – yes ESMA, EBA and EIPOA reported separately (!) – the ESAs reiterate the 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.
4 principles on greenwashing
Out of the respective reports you can distinguish 4 principles on how greenwashing is understood:
- Principle 1: Sustainability claims made should be accurate, precise, and should fairly represent their overall profile and business model, or the profile of their product(s)
- Principle 2: Sustainability claims should be substantiated and support their claims with clear reasoning, facts and processes.
- Principle 3: Sustainability claims and their substantiation should be accessible, clear and presented in a way that can be understood by the targeted stakeholders.
- Principle 4: Sustainability claims should be kept up to date, and any material change should be disclosed in a timely manner and with a clear rationale.
Based on these principles some examples of shortcomings identified by ESAs:
- Inconsistencies between marketing material and disclosures under SFDR
- lack of information on procedures and controls in place
- lack of information on binding elements of investment strategy and on data and data limitations
- inconsistency between marketing material and pre-contractual disclosures under SFDR,
- misleading practices regarding funds names, processes, and governance to ensure the integration of ESG factors into risk management.
Greenwashing examples
Some examples of greenwashing reported related to the SFDR are:
- Marketing a product as green/sustainable product on your website though the product itself does not have such features.
- Claiming that your investments will be done sustainably solely by looking at Article 8 of the SFDR? It is perceived misleading towards consumers as Article 8 SFDR does not provide any actual reliability of a degree of sustainability.
- Promoting your investment funds as green/ESG/sustainable on your website, while there is a lack of information about these funds and/or their manufacturer in accordance with relevant provisions of the SFDR
- Or the advertisement of a fund as having a measurable effect on CO2 avoidance and that investors would make a measurable ecological contribution by investing in the fund, without informing the client on how the calculation is carried out, and without presenting the calculation method in a sufficiently clear and comprehensible manner
The above shows that ESG keeps you and competent authorities busy. Not only your disclosures and marketing materials should be clear, fair and not-misleading, but you should also have an adequate governance, processes and controls in place to prevent greenwashing. Need help? We are happy to assist!
