Industry Updates

European regulators probe asset managers on greenwashing practices

Part of a wider call for evidence from financial markets

Theo Andrew

European Union regulation

The European Supervisory Authority (ESA) is launching a new probe on potential greenwashing practices across the European Union’s financial sector.

The joint committee of regulators, including the European Securities and Markets Authority (ESMA), launched a call for evidence on Wednesday to better understand the level of greenwashing across the sustainable investment value chain.

Specifically, the ESA will target benchmark administrators, product manufacturers and investors as it looks to get a grip on the rapidly evolving space of sustainably related product offerings.

“Growing demand for sustainability-related products combined with rapidly evolving regulatory regimes and sustainability-related product offerings create a context that may be conducive to increased greenwashing risks,” the ESA said.

Looking within the EU’s sustainable finance regulatory framework, the ESA highlighted greenwashing risks within the Sustainable Finance Disclosure Regulation (SFDR) Article 9 product-level disclosure requirements including Paris-aligned Benchmark (PAB) and Climate Transition Benchmark (CTB) climate ETFs.

In addition, it will also question practices outside of its regulatory framework such as ESG rating providers.

The joint committee said it is looking for evidence of potential greenwashing practices such as mentioning ESG awards within marketing materials, as well as claims made on websites and social media.

It added such practices could be driven by data-related issues, the need to build expertise and skills and challenges around interpreting and applying new regulations.

Last month, a German consumer group said it was filing a lawsuit against DWS for allegedly using misleading sustainability claims in its advertising.

Other misleading practices include cherry-picking positive information, exaggerating claims, omission or lack of disclosure and vagueness or lack of clarity.

“If not addressed, greenwashing will undermine trust in sustainable finance markets and policies, regardless of whether immediate damage to individual consumers or investors, in particular through mis-selling, or the gain of an unfair competitive advantage has been ascertained,” the ESA added.

The ESA said the responses, which are due by 10 January, will form part of its greenwashing progress report expected in May 2023.

The probe comes as asset managers grapple with the incoming ‘level 2’ regulatory technical standards under SFDR as uncertainty still surrounds the regulation, set to take effect from 1 January.

As a result, asset managers including BlackRock, UBS Asset Management and Invesco have already started downgrading their climate ETF ranges from Article 9 to Article 8 in a bid not to be caught out by the new requirements.

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