ESAs Urge Stricter Oversight & Better Practices to Combat Greenwashing

In a coordinated move, the European Supervisory Authorities (ESAs) – comprising the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA) – published their final reports on greenwashing risks on Tuesday.

In their reports, the ESAs stressed the responsibility of financial market players to provide sustainability information that is fair, clear, and not misleading. They acknowledged that national competent authorities (NCAs) are already taking steps to supervise sustainability-related claims but urged further action to mitigate greenwashing risks.

ESMA Chair Verena Ross emphasized the importance of effective and consistent supervision of sustainability-related claims for investor protection and a trustworthy environment for ESG (Environmental, Social, and Governance) markets. She reminded market participants of their responsibility to avoid unsubstantiated sustainability claims and to communicate any sustainability-related information transparently.

The ESAs outlined priority actions to enable supervisors to better address greenwashing risks, including:

1. NCAs should gradually deepen their critical scrutiny of sustainability-related claims by increasing human resources, expertise, and the use of supervisory technology (SupTech) solutions.
2. ESMA will continue supporting the monitoring of greenwashing risks, deploying SupTech tools, and building supervisory capacity. Common Supervisory Actions and additional guidance for market participants and supervisors may be provided in high-risk areas.
3. The European Commission is urged to reinforce NCAs' and ESMA's mandates in certain areas, such as benchmarks, and ensure that NCAs have the necessary powers and access to data to effectively supervise sustainability-related claims.

The ESAs acknowledged that addressing greenwashing requires a global response and close cooperation among financial supervisors, as well as the development of interoperable standards for sustainability disclosures.

ESMA plans to publish an Opinion outlining how the EU's regulatory framework for sustainable finance could be further improved to facilitate the investors' journey.

As sustainable finance continues to grow, regulators and market participants alike face the challenge of ensuring transparency and accountability in sustainability-related claims to maintain investor trust and market integrity.

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