ESAs Call for Enhanced Supervision and Improved Market Practice on Sustainability-Related Claims

ESAs Call for Enhanced Supervision and Improved Market Practice on Sustainability-Related Claims

By Prathamesh 11 June, 2024

ESAs coordinated approach on greenwashing risks

In respective reports the ESAs reiterate their 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.

Each ESA provides a stocktake of the current supervisory response to greenwashing risks under its remit and notes that competent authorities (CAs) 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.

While the ESAs’ reports focus on the EU’s financial sector, they acknowledge that addressing greenwashing requires a global response, involving close cooperation among financial supervisors and the development of interoperable standards for sustainability disclosures.

Highlights from the EBA Final Report

The EBA final Report provides an overview of greenwashing risk in the banking sector and its impact on banks, investment firms and payment service providers, with a focus on the changes during the last year. It also provides recommendations to institutions, supervisors, and policymakers.

The outcome of the quantitative analysis of greenwashing shows a clear increase in this trend across all sectors, including by EU banks. The total number of alleged cases continued to increase in 2023 (+21.1% in all regions and +26.1% in the EU compared to 2022).

The final Report investigates the actual and potential alleged greenwashing occurrences as reported by the competent authorities and provides updates on the adverse impact that greenwashing can have on institutions and consumers. Reputational and operational risks continue to be considered most impacted by greenwashing. This is in line with the observation that litigation risk resulting from greenwashing has been in a rising trend in the last years.

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