Probe may lead to further supervisory or enforceable action; ESAs also call for extension to PAI review.
The European Supervisory Authorities (ESAs) have issued a Call for Evidence to stakeholders on greenwashing.
The European Banking Authority (EBA), European Securities and Markets Authority (ESMA) and European Insurance and Occupational Pensions Authority (EIOPA) want to collate stakeholder views on the main drivers of greenwashing and practical examples of potential greenwashing practices. The ESAs have also asked for any available data to help them gain a more concrete sense of the scale of greenwashing and areas of particularly high risk.
“Obtaining a more granular understanding of greenwashing will help inform policy-making and supervision and will help foster the reliability of sustainability-related claims,” they said.
The call for evidence follows recent examples of greenwashing crackdowns on asset managers, such as the German police raid of DWS offices in response to allegations of the firm misleading investors on ESG-labelled products.
This is part of a mandate issued to the financial watchdogs by the European Commission in the spring, within which the ESAs were asked for input on greenwashing risks and the supervision of sustainable finance policies. They are expected to provide a progress report within 12 months and submit any final reports by 2024.
Based on the ESAs’ feedback, the Commission will consider whether further supervisory or enforceable action is needed to reduce greenwashing risks.
Stakeholders have until 10 January, 2023, to submit their responses to the ESAs.
US and UK regulators have also been developing new anti-greenwashing rules for funds.
The US Securities and Exchange Commission (SEC) proposed two rule changes to prevent misleading claims by US funds on their ESG credentials. One proposal outlines amendments to the Investment Company Act’s ‘Names Rule’, expanding these requirements so they cover a wider array of sustainability-labelled funds. The second proposes changes to reporting rules concerning advisers’ and funds’ incorporation of ESG factors in their marketing material.
More recently, the UK’s Financial Conduct Authority (FCA) published a consultation outlining measures to tackle greenwashing, introducing three new categories for sustainable investments as part of the country’s Sustainable Disclosure Requirements (SDRs) – the UK equivalent to the EU’s Sustainable Finance Disclosure Regulation (SFDR).
More time needed
Separately, the ESAs have written to the Commission asking for a six-month extension on a mandate to review the principal adverse impact indicators (PAI) and financial product disclosures outlined under SFDR.
Level one of SFDR required asset managers to sort their investment products into three progressively green categories: Article 6 (not sustainable), Article 8 (sustainable characteristics) and Article 9 (sustainable objectives). Level two requires asset managers to provide the underlying detail to justify these categorisations through a series of environmental and social PAIs.
The three bodies have identified “significant challenges” relating a the “substantial number of technical components” to the SFDR PAIs, and require input from expert bodies and agencies, as well as the customary three-month public consultation with external stakeholders, they said.
“The revision and extension of PAI indicators covering inter alia their respective definitions, applicable methodologies, metrics and presentation is a substantial and technically demanding exercise,” the ESAs added, noting that they consider it important to develop a more objective basis for the PAIs’ do no significant harm framework and to expand on the social indicators.
The ESAs further noted that, during the first six months of this mandate, they were delivering the Regulatory Technical Standards (RTSs) for fossil gas and nuclear energy, following their late inclusion in the environmental taxonomy.
“Based on these factors, it will not be possible to meet the original deadline of 28 April 2023 as set in your mandate. The ESAs would therefore hereby like to notify you of up to a six-month delay for the delivery of this mandate,” they said.