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European Supervisory Authorities publish reports on greenwashing in the financial sector

This week, the European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have published their final reports on greenwashing in the financial sector. In their report, each ESA provides a stock take of the current supervisory response to greenwashing risks under its remit and notes that national competent authorities (NCAs) 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. Supervision on greenwashing risks is primarily performed by the AFM, with a focus on transparency and consumer protection. Within its prudential supervision mandate, DNB considers reputational and legal risks of financial institutions that may be a consequence of greenwashing.

Published: 07 June 2024

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Highlights from the EBA Final Report

The EBA final Report focuses on greenwashing risk in the banking sector and its impact on banks, investment firms and payment service providers. It also provides recommendations to institutions, supervisors, and policymakers. Reputational and operational risks are most affected by greenwashing, with rising litigation risk observed in recent years. The EBA recommends institutions to ensure accurate, substantiated and understandable sustainability claims at both entity and product levels. NCAs should actively monitor greenwashing risks within their supervision mandates.

Highlights from the EIOPA Final Report

The EIOPA report focuses on misleading or unsubstantiated sustainability claims in the insurance or pension sector. An insurer or pension fund that makes misleading or unsubstantiated sustainability claims can be exposed to reputational risks and suffer from financial damage when involved in greenwashing. EIOPA recommends to institutions that (1) sustainability claims should be accurate, precise, and consistent with the institution’s overall profile and business model, (2) sustainability claims should be kept up to date, (3) sustainability claims should be substantiated with clear reasoning and facts and (4) sustainability claims and their substantiation should be accessible by the targeted stakeholders.

Highlights from the ESMA Final Report

The ESMA report observes that supervision of sustainability claims on capital markets has become a priority for NCAs. Together with ESMA, they are taking actions to counter greenwashing risks and scrutinise sustainability claims, and ensure effective and consistent European supervision through Common Supervisory Actions. ESMA identifies access to expertise and to good quality data as challenges for NCAs. ESMA invites NCAs to continue to increase human resources and expertise, make investments in supervisory tools such as SupTech solutions and further embed greenwashing risks in their respective supervisory work programmes.

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