Efforts to tackle greenwashing in financial markets should prioritise the correct and clear implementation of the Sustainable Finance Disclosure Regulation (SFDR), Taxonomy and address those seeking an unfair competitive advantage, PensionsEurope has stated.

In its position paper on the European Supervisory Authorities’ consultation on greenwashing, PensionsEurope noted that most greenwashing risks for pension funds were related to the implementation of sustainable finance legislation, by both internal and external parties.

The association warned that copying the regulations for retail financial services without regard to the specificities of pension fund would lead to poor and inadequate regulation.

“As not-for-profit organisations with often mandatory participation and without marketing or sales that operate on the demand side of the financial market, pension funds are not involved in ‘misselling’ ESG claims in order to obtain an unfair competitive advantage,” PensionsEurope said.

Despite this, it emphasised that pension funds want to and are obligated to inform their participants accurately about their investments.

The position paper added that as pension funds are investors at the end of the investment chain, they rely on external data sources to access and report on the sustainability of their investments, and while it is therefore possible for pension funds to receive and spread false claims, it is also costly to verify all data.

As sustainable finance regulation is still being implemented and problems with ESG data availability are ongoing, the implementation process and regulatory uncertainty continue to exist, PensionsEurope noted, and it is therefore “really challenging” to assess violation evidence and the need for possible legislative and supervisory powers on greenwashing.

PensionsEurope outlined three challenges to be overcome concerning the existing regulation: The availability of good quality ESG data, the implementation of SFDR and Taxonomy, and the uncertainty and divergence in the regulatory framework.

On greenwashing, PensionsEurope stated: “Regulation should allow for sufficient flexibility for pension funds’ boards to incorporate the relevant ESG and non-ESG considerations.

“However, the implementation of sustainable finance legislation should introduce a certain level of comparability.

“Given the recent implementation of legislation, supervisors should focus on correct and clear implementation, before considering expanding legislative and supervisory powers.

“However, complete uniformity is not achievable and would come at the expense of comprehensibility and usability for end-users, such as pension fund participants.

“Instead, action on greenwashing should focus on parties seeking unfair competitive advantage. This excludes pension funds since, as stated above, they are not ‘market participants’ that sell a ‘product’ on an open market and are consequently not involved in dishonest marketing practices such as greenwashing – or even any marketing practices at all.”

The association called for regulators and supervisors to accept various ESG approaches in assessing greenwashing and for the legal definitions of greenwashing to fit the definitions used in sustainable finance regulations.

Finally, it stated that the differences in standards for government-issued green bonds persisted, and the greenwashing risk on these bonds could be prevented by requiring performance indicators.

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