European Regulators Call for Stricter Supervision to Combat Greenwashing

June 5, 2024

The EU’s three primary financial services regulators have called for improved supervision and market practice to enhance the integrity of sustainability-related claims in the financial sector.

The European Banking Authority (EBA), European Securities and Markets Authority (ESMA) and European Insurance and Occupational Pensions Authority (EIOPA) released their final reports on greenwashing on June 4 as part of a coordinated campaign to highlight the need for stricter oversight of sustainability claims.

The reports come amid a significant increase in alleged greenwashing cases, with a 21.1% rise globally and a 26.1% increase within the EU in 2023 compared to the previous year, according to the EBA’s report.

The EBA said the existing legislative and regulatory framework provides the "key foundations” to combat greenwashing in the banking sector, but stressed the importance of addressing ongoing challenges related to data, usability, consistency and international interoperability.

ESMA, meanwhile, urged national regulators to deepen their scrutiny of sustainability-related claims and increase their resources and expertise in this area.

The European Regulators said National Competent Authorities (NCAs) had detected only a small number of actual or potential instances of greenwashing, which it said may be a reflection of a lack of resources, expertise or financial literacy at the national level.

ESMA urged NCAs to “further integrate greenwashing risks into their risk-monitoring framework and to gradually deepen their critical scrutiny of sustainability-related claims" and increase their resource allocations in this area.

EIOPA’s report identified room for improvement in the implementation of current sustainability-related requirements, particularly regarding product-level disclosures under the Sustainable Finance Disclosure Regulation (SFDR).

The report also noted an increase in supervisory activities related to greenwashing, with more national authorities reporting greenwashing occurrences and dedicating resources to its supervision.

All three regulatory bodies emphasised the responsibility of financial market players to provide clear, fair and non-misleading sustainability information. They unanimously said they would increase scrutiny to ensure compliance with existing and planned regulation.