Belgium (Brussels Morning Newspaper) The European Union’s market watchdog announced plans today to create a legal definition of “greenwashing”, in order to be able to take enforcement actions against companies falsely advertising their businesses and investments as “climate-friendly”.
The term “greenwashing” has come to mean over-inflating the supposed benefits for the environment, social, and governance (ESG), whereby companies attempt to present an idealised image of caring for the environment and the community.
While many agree such claims are often dubious and based on misleading or incomplete data, investment firms are rarely if ever penalised for engaging in greenwashing since no current hard-set framework exists as to what its precise meaning is in legal terms.
The European Securities and Markets Authority (ESMA) stated on Friday that it envisions a scenario in which greenwashing is tackled on the basis of a complete set of rules, which would set boundaries on market behaviour and clearly define practices that are prohibited.
“There is now a real need to address greenwashing without delay, even if all the legislative stepping stones are not fully in place yet”, ESMA declared in presenting its sustainable roadmap document.
The agency aims to first define the “greenwashing phenomenon”, which could help steer supervisory work by various regulators in a coordinated and efficient manner. The definitions would help set greenwashing apart from other misleading “mis-selling” practices for financial products. It also seeks to determine how greenwashing can and might spread, and what measures need to be taken to promote transparency.
The ESMA announcement comes as the EU is bringing in new ESG disclosure requirements for companies and asset managers, coupled with a so-called “taxonomy” of investments that can be legally labelled as “green”.