ESG Tag

by Andria Papageorgiou

ESMA’s Final Report on Greenwashing

The Final Report on Greenwashing by ESMA was published on 4/6/2024, in response to the European Commission’s request, outlines the risks associated with greenwashing and the role of supervision in mitigating these risks. Here is a summary of the report:

1. Introduction and Background:
   • Greenwashing refers to the practice of making misleading claims about the environmental benefits of a product, service, or company practices.
   • The European Commission (EC) requested input from the European Supervisory Authorities (ESAs) to address greenwashing risks and supervise sustainable finance policies.
   • The report builds on the findings from the Progress Report and explores how supervision can mitigate greenwashing risks.
2. Key Findings:
   • National Competent Authorities (NCAs) are prioritizing the supervision of sustainability-related claims.
   • A risk-based approach is being implemented, focusing resources on significant risks.
   • Greenwashing can occur at various levels: entity level (sustainability strategy), product level (sustainability performance), and service level (financial advice).
3. Supervision Enhancement:
   • The report identifies actions for NCAs, ESMA, and the EC to enhance supervision across key sectors of the Sustainable Investment Value Chain (SIVC), including issuers, investment managers, investment service providers, and benchmark administrators.
   • A pathway for enhancing supervision is suggested, emphasizing the importance of building supervisory capacities and tools.
4. Recommendations:
   • Market participants should ensure substantiated sustainability claims and clear, non-misleading communication of sustainability information.
   • Recommendations include adapting governance and processes, building expertise, upgrading data infrastructure, and ensuring comprehensibility for consumers.
5. Regulatory Framework:
   • The report recommends improvements to the EU regulatory framework to better address greenwashing risks.
   • Supervisors should leverage their mandate to protect investors and ensure the proper application of sustainability-related requirements.
6. Conclusion:
   • Addressing greenwashing is crucial for maintaining trust in sustainable finance markets.
   • The report outlines a forward-looking view on enhancing supervision to ensure that sustainability-related claims are credible and trustworthy.

The Final Report emphasizes the need for robust supervision and regulatory measures to prevent greenwashing and ensure transparency in sustainability-related claims​

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