Regulatory uncertainty that the industry is contending with as a result of the complex range of interacting legal requirements needs to be recognised as a factor when considering greenwashing, Efama, the EU’s main trade body for asset management, said. Luxembourg’s Alfi argued that “the element of intent” needs to be included when making judgements on greenwashing.
In its response to the EU call for evidence on greenwashing, which closed last night, the European Fund and Asset Management Association, Efama, called on EU supervisors to make a clear distinction between industry practices based on misleading with intent and those stemming from regulatory uncertainty.
“Intentionally misleading behaviour relating to sustainable investments should not be tolerated, in the same way that other misleading practices regarding risk or performance are not tolerated,” said Anyve Arakelijan, regulatory policy adviser at Efama. “However, considering the current degree of regulatory uncertainty and ongoing evolution, we must be careful to not apply the term greenwashing too broadly.”
‘Intent’ matters, says Alfi
In its response, the Association of the Luxembourg Fund Industry, Alfi, argued that the EU need to recognise “the element of intent” in greenwashing. A lack of ESG expertise, differing interpretations of the regulatory framework, a lack of reliable data or a mismatch between retail investors’ expectations and market participants’ ability to deliver real-world impact “should not be considered as intentional greenwashing,” Alfi said in its response.
Noting growth demand for sustainable financial products, the EU in November launched a call for evidence to gather input from stakeholders on how to understand the key features, drivers and risks associated with greenwashing and to collect examples of potential greenwashing practices.
“Obtaining a more granular understanding of greenwashing will help inform policy making and supervision and will help foster the reliability of sustainability-related claims,” Esma said when announcing the call.
All actors concerned
Efama, in its response, commented that “all market actors” are concerned about the risk of greenwashing “in an environment with unclear definitions at EU level on key sustainable finance concepts, as well as a lack of complete, comparable and transparent ESG data”.
Greenwashing assessments should consider if product claims are “knowingly misrepresenting sustainability-related practices” and should ask if receivers of the sustainability claim have been misled intentionally.
Gross negligence
And even “where there is no intention to mislead or induce” buyers of financial products, “there may still be greenwashing in cases of gross negligence on the financial market participants making the claim”, said Efama.
The association also emphasised “the need for an aligned and consistent approach” when addressing greenwashing risks in the financial sector, across Europe and internationally, in order to reduce confusion and the risk of harmful market fragmentation.
“Strengthening the understanding of what constitutes greenwashing and having harmonised supervisory action to address this risk is crucial,” said Arakelijan. “Otherwise investor confidence in sustainable finance could be severely undermined, threatening efforts to transition to a more sustainable economy.”