On 31 May 2023, the European Supervisory Authorities (ESAs) published their progress reports on greenwashing in the financial sector. In these reports, the ESAs put forward a common high-level understanding of greenwashing applicable to market participants across their respective remits – banking, insurance and pensions, and financial markets.

The reports follow a request from the European Commission to the ESAs, to provide input on the phenomenon of greenwashing, first in the form of progress reports by May 2023.

The ESMA report sets out the following:

• Risk areas: The findings show that misleading claims may relate to all key aspects of the sustainability profile of an entity – from governance aspects to sustainability strategy, targets and metrics or claims about impact. The report also provides sector-specific assessments for key sectors under ESMA’s remit such as issuers, investment managers, benchmark and administrators and investment service providers.
• The causes of greenwashing: Greenwashing is the result of multiple inter-related drivers. Market participants across the sustainable investment value chain (SIVC) face challenges in implementing the necessary governance processes and tools that support high-quality sustainability disclosures and transition efforts. In this context, market participants also have difficulties in producing and accessing relevant, high-quality sustainability data. Furthermore, a fast moving regulatory framework has created implementation challenges for both market participants and for Member State competent authorities and highlighted the need to build sustainability expertise.
• Preliminary remediation actions: To mitigate greenwashing risks, market participants across the SIVC have to live up to their responsibility to make substantiated claims and communicate on sustainability in a balanced manner. Comprehensibility of sustainability disclosures to retail investors needs to be improved, including by establishing a reliable and well-designed labelling scheme for financial products. Finally, the regulatory framework needs to gain in maturity, key concepts need to be clarified and sustainability impact or engagement better integrated.

The report lays the ground for mitigating greenwashing risks in the future, throughout the SIVC and in key sectors under ESMA’s remit.

The ESAs will publish final greenwashing reports in May 2024 and will consider final recommendations, including on possible changes to the EU regulatory framework.