Following their call for evidence in November 2022, on 1 June 2023, the European Supervisory Authorities (“ESAs”) published their first progress reports on greenwashing (the “Reports”) to better identify the phenomenon and to assess which areas of the sustainable investment value chain (“SIVC”) are more exposed to greenwashing risks.

In the Reports the ESAs have developed the following common high-level understanding of greenwashing: “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.”

Among others, the Reports identify preliminary remediation actions involving, on one side, the regulatory framework – where certain key concepts (such as the definition of greenwashing) should be clarified – and, on the other side, market participants, having a responsibility to make substantiated claims and communicate sustainability information in a balanced manner. Furthermore, the Reports add that tackling ESG literacy gaps and establishing a reliable and well-designed labelling scheme will increase retail investors’ participation.

The Reports also identified a material enforcement gap (a lack of supervisory oversight exercised on sustainability-related claims) where greenwashing in the financial sector is indirectly addressed in various pieces of financial legislation as well as through rules governing consumer protection and the prohibition on misleading advertising. In this respect, it has been found that rather than having an organic and consistent framework applying to the financial sector, greenwashing in several EU countries is currently addressed through general sectoral principles and the regulation of misleading commercial practices under consumer law, without specific guidance on greenwashing.

In this context, the remainder of this article identifies some of the key pillars of the current Italian regulatory and enforcement regime for greenwashing.

As a preliminary remark, under Italian law, there is no specific provision under sectoral financial legislation which directly sanctions greenwashing. Instead, greenwashing is captured by the prohibitions set out under consumer legislation by rules on unfair commercial practices and misleading advertising.

With regard to the former, a commercial practice is considered unfair, and more specifically misleading, if it contains false information  and is therefore untruthful or in any way deceives the average consumer in relation to, among others, the nature and the main characteristics of the product, leading him to take a transactional decision that he would not have taken otherwise (art. 21 of Legislative Decree No. 206 of 6 September 2005, the so-called Consumer Code).

In respect of the latter, advertising is deemed misleading – thus forbidden – if it is likely to mislead the persons to whom it is addressed or to whom it reaches and which, by reason of its misleading character, is likely to prejudice their economic behavior or which is likely to harm a competitor (art. 2, lett. b) of Legislative Decree No. 145 of 2 August 2007).

Under this framework, the Italian competition authority, i.e. the Authority for the Guarantee of Competition and Market (the “AGCM”) may impose various sanctions ranging from an order to cease the commercial practice to the imposition of administrative fines up to a maximum of 5 million euros if the practice is deemed unfair and 500,000 euros should the practice be deemed misleading advertising (art. 9 of Decree N. 145 and art. 27 of the Consumer Code).

Also, there is a soft law regime regarding commercial communications which specifically provides that a marketing communication that claims or evokes benefits of an environmental or ecological nature must be based on truthful, relevant and scientifically verifiable data and must specify to which aspect of the advertised product or activity the claimed benefits relate (art. 12 of the Self-Regulatory Code of Commercial Communication).

By virtue of this provision, greenwashing would be sanctionable through cease-and-desist orders and the relevant sanction being published on the website of the self-regulatory body. However, this ‘soft law’ regime has limitations in the sense that it only applies to entities (including users, agencies, marketing and advertisement consultants) which have expressly agreed to be bound by it.

In terms of enforcement action, in 2020, the AGCM issued an order imposing the first greenwashing sanction against an energy company for disseminating misleading advertising messages regarding the claim of the positive environmental impact of its products. In particular, the AGCM prohibited the use of the word “green” for any future marketing campaign without prior approval of the AGCM and imposed the maximum permitted sanction of 5 million euros.

In addition, a case has been recently dealt with by a local court, leading to the issuance of precautionary measures consisting of an order requiring a company to cease its marketing campaign and to publish the court’s measure on its website for 60 days. The advertising message was found to be misleading in that it contained unverifiable or generic environmental benefits that were likely to confuse consumers, thus constituting misleading advertising and therefore unfair competition.

As a matter of fact, greenwashing is being addressed through enforcement action which is based on relevant sectoral regulation, which provide the authorities with the legal grounds (i.e. specific prohibitions) and the means (e.g. sanctioning powers) to intervene.

Conversely, legislation applying to the financial sector has not yet directly addressed greenwashing although discussions on how to tackle it appears to be ongoing in the area of investor protection. It has been found that – despite an increasing interest in sustainable finance – fear of greenwashing lack of ESG literacy remain key deterrents to sustainable investing (Consob, Report on financial investments of Italian households, 2022). In conclusion, it remains to be seen what direction future legislative initiatives will take when addressing greenwashing particularly in the financial sector, both at the national and EU level (where a proposal of a directive is on the table) and in the structuring of the enforcement regime where many companies operate across several borders. In any case, companies should remain vigilant and promptly adapt to any new requirements.