ESG Controversies Can Help Track Greenwashing – ESMA

The European Securities and Markets Authority (ESMA) has argued that data on ESG controversies can provide investors with more insight into their exposures to portfolio companies’ greenwashing. An article in the regulator’s latest Trends, Risks and Vulnerabilities report noted that, while data on ESG-related controversies does not in and of itself provide accurate information on the scale or frequency of greenwashing occurrences, this information is important from an investor protection angle since it reflects “public perceptions of greenwashing”, which can represent increased reputational risk. “Reflecting the potential influence that controversies can exert on investor allocations, some industry bodies have recently called for controversy data to be brought into the scope of EU regulation to increase transparency,” ESMA said. Between 1 January 2020 and 31 December 2021, 191 European companies were involved in 933 misleading communication incidents – 70% of which were greenwashing, the article noted. Earlier this year, the European Supervisory Authorities published their high-level common understanding of greenwashing. Separately, ESMA has also published an article outlining a methodological approach to modelling climate-related shocks in the fund sector.

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