Europe’s financial sector supervisors call out greenwashing risk

Member states need to step up action to mitigate greenwashing risks across the sector, according to Europe’s financial services supervisors. Delivering their final reports on greenwashing risk to the European Commission, the European Supervisory Authorities (ESAs: Eiopa, EBA and ESMA), jointly called on national regulators to enhance their supervision of the sector’s potential for greenwashing, while also warning financial firms to improve market practice on sustainability-related claims for their products and services. “The ESAs stress again that financial market players have a responsibility to provide sustainability information that is fair, clear, and not misleading,” they said. Publishing its report on the securities market, the European Securities & Markets Authority (ESMA) said national financial services regulators have reported only a few greenwashing cases, which it said was largely because of a lack of resources at national level. It said regulators must escalate their efforts to reach their full potential. “Formal enforcement decisions are, up to now, limited,” the ESMA said. “Most NCAs [national competent authorities] consider, however, that their resources are not sufficient,” ESMA said. The European Insurance and Occupational Pensions Authority (Eiopa) agreed: “Several challenges in the supervision of greenwashing remain, notably: resource constraints, a lack of sustainability-related data, the complexity of the regulatory framework and a lack of common approach to supervise greenwashing,” it said. Eiopa said it has seen a growing number of potential greenwashing cases, with “room for improvement” among firms in their compliance with sustainability-related requirements. So far this year, national supervisors in 11 member states have reported cases of greenwashing, up from eight in the 2023 survey. In addition, six national regulators are currently investigating potential cases, it said. “If left unaddressed, greenwashing could undermine genuine efforts to finance the sustainable transition and erode consumers’ trust in Europe’s insurance and pensions sectors,” Eiopa warned. In its poll of almost 100 insurance providers across the EU, Eiopa said the integration of sustainability-related objectives in product oversight and governance is “not adequate”, especially for non-life products. Eiopa proposed changing existing regulation to clarify non-life insurance products with sustainability features. “The understanding of what is a non-life product with sustainability features varies across undertakings,” Eiopa said, with 16 out of 46 non-life insurers classifying some of their products as “green”. “A lack of standards in relation to non-life products with sustainability features can lead to a higher risk of greenwashing,” it said. It urged national supervisors overseeing the risk of greenwashing in their sector to consider whether sustainability claims are accurate, precise, a fair representation of the provider and its products, and can be substantiated. It also said claims about sustainability should be updated and any material changes disclosed. The ESAs are due to publish their opinion on the Sustainable Financial Disclosure Regulation, which “may indicate further enhancements”. Eiopa highlighted compliance issues with the regulation’s product-level website disclosures. Publishing its own sectoral report, the European Banking Authority (EBA) said greenwashing cases across the EU increased by 26% in 2023. Meanwhile, ESMA chair Verena Ross told firms: “I would also like to remind all market players of their responsibility to avoid making unsubstantiated sustainability claims and to communicate any sustainability-related information in a manner that is fair, clear and not misleading.”

Europe’s financial sector supervisors call out greenwashing risk

The three sector supervisors advising the EC said lack of resources is holding back national regulators from enforcing greenwashing rules

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Want to read this article?

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