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European Regulators Urge Stronger Supervision to Combat Greenwashing in Financial Sector

European Regulators Urge Stronger Supervision to Combat Greenwashing in Financial Sector

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The European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) published their Final Reports on Greenwashing in the financial sector.  

Key Impact Points:

  • EU regulators (EBA, EIOPA, and ESMA) outline coordinated efforts to combat greenwashing.
  • Enhanced supervision and clearer sustainability disclosures are prioritized.
  • Future actions include increased resources, expertise, and technological investments for effective oversight.

The European Supervisory Authorities (EBA, EIOPA, and ESMA – ESAs) have published their final reports on greenwashing in the financial sector. These reports reiterate a common high-level understanding of greenwashing as practices where sustainability-related statements, actions, or communications do not clearly and fairly reflect the underlying sustainability profile, potentially misleading consumers, investors, or other market participants.

The ESAs emphasize the responsibility of financial market players to provide fair, clear, and non-misleading sustainability information. Each authority provides an overview of current supervisory responses to greenwashing risks and outlines how supervision can be gradually enhanced over the coming years.

“Effective and consistent supervision of sustainability-related claims is critical to investor protection and a trustworthy environment for ESG markets,” said ESMA Chair, Verena Ross. “With a risk-based approach, ESMA has promoted EU-level common supervisory actions across the sustainable investment value chain and will continue to foster convergent and effective supervision.”

The reports highlight that addressing greenwashing requires a global response and cooperation among financial supervisors to develop interoperable standards for sustainability disclosures.

Key Actions and Recommendations:

  • National competent authorities (NCAs) are expected to deepen their scrutiny of sustainability-related claims by increasing human resources, expertise, and investing in supervisory tools like SupTech solutions.
  • ESMA will continue supporting the monitoring of greenwashing risks, deploying SupTech tools, and capacity building. It will also prompt Common Supervisory Actions where needed and may produce additional guidance for high-risk areas of greenwashing.
  • The European Commission is invited to reinforce NCAs’ and ESMA’s mandates and ensure legislative frameworks support data access and promote retail investors’ financial education.

Building on the progress made, ESMA will publish an Opinion with views on further facilitating the EU regulatory framework for sustainable finance, enhancing the investors’ journey.

Next Steps:

ESMA will continue monitoring greenwashing risks and supervisory progress, including through the ongoing Union Strategic Supervisory Priority on “ESG Disclosures”.

The ESAs’ coordinated efforts and detailed recommendations signify a strong commitment to combating greenwashing in the financial sector. By enhancing supervision and fostering global cooperation, the EU aims to create a transparent and reliable environment for sustainable finance.

See ESMAEBA, and EIOPA reports.

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