The European Supervisory Authorities (ESAs) have published their progress reports on greenwashing in the financial sector, outlining their common high-level understanding of greenwashing applicable to market participants across banking, insurance and pensions, and financial markets.

The European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA), collectively known as the ESAs, defined greenwashing as “a practice where sustainability-related statements, declarations, actions, or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product, or financial services".

This practice may be misleading to consumers, investors, or other market participants, according to the ESA’s definition.

They highlighted that sustainability-related misleading claims can occur and spread either intentionally or unintentionally, and in relation to entities and products that are either within or outside the remit of the EU regulatory framework.

Therefore, the National Competent Authorities (NCAs) and the ESAs are working together to aim to meet expectations from stakeholders to ensure consumer and investor protection, support market integrity and maintain a ‘trusted environment’ for sustainable finance.

The ESAs noted that, due to the integrated nature of the financial system, they will work in a coordinated manner to address greenwashing.

In EIOPA’s report, the authority provided its initial views on how it occurs, its impact, challenges related to its supervision, and its implications for the regulatory framework.

It found that greenwashing can occur to varying extents as part of the broader set of conduct risks at all stages of pensions lifecycles, such as scheme design, delivery and management.

The report also highlighted examples of how greenwashing manifests itself in practice.

“Greenwashing has a substantial impact on insurance and pension consumers,” EIOPA stated.

“Unsubstantiated sustainability claims can deceive them into buying products that are not aligned with their preferences and increase their mistrust towards insurance and pension providers in general.

“Greenwashing also impacts insurance and pension providers themselves, who might suffer substantial reputational and financial damage when instances of greenwashing are disclosed to the public.

“Ultimately, greenwashing may hinder the financing of the transition to a sustainable economy.”

EIOPA and the NCAs have begun to integrate greenwashing in their supervisory activities, noting that some early supervisory challenges include resource constraints, limited expertise on sustainable finance requirements, and the lack of methodologies to assess greenwashing in the insurance and pensions sectors.

The authority added that while the current EU sustainable finance regulation framework provides a good initial basis to tackle greenwashing in the pensions sector, data-gathering exercises had indicated some gaps and limitations.

In view of the evidence received from stakeholders and following EIOPA’s own analysis, EIOPA plans to propose improvements to the regulatory framework in its final report, which will be published in May 2024.

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