In May 2022, the European Commission issued a “request for input related to greenwashing risks and the supervision of sustainable finance policies” to the three ESAs. To address this request, the ESMA published an exploratory report and plans to publish a final report in May 2024, which will include supervisory powers, resources, and actions to tackle greenwashing risks. It will also include final recommendations.
The ESMA preliminary report “Progress Report on Greenwashing” identifies the areas most exposed to greenwashing risks and possible actions for tackling them. Those comprise issuers, investment managers, benchmarks, and investment service providers. As a result of their investigation, it turns out that greenwashing is the result of multiple interrelated drivers. Amongst the problematic elements developed by the preliminary report written by ESMA, these caught our attention:
- Misleading claims can relate to all aspects of an entity or product’s sustainability profile: ESG governance and resources, ESG performance metrics and targets, ESG strategy, policies and credentials, and sustainability impact.
- Cherry-picking, omission, ambiguity, empty claims (including exaggeration), as well as misleading naming and irrelevance, are among the identified misleading qualities.
- Forward-looking information and pledges of future ESG performance appear to be particularly exposed to greenwashing risk; enhanced transparency on underlying assumptions and parameters are highlighted as fundamental to help investors make informed decisions.
- Misuse of SFDR as a labelling regime.
- Further transparency on ESG data methodologies, clear and reliable calculation of estimates, external audit and supervision would contribute towards enhancing the reliability of sustainability data.
The Corporate Sustainability Reporting Directive (CSRD) was finalised on 5 January 2023 and will become effective as of 1 January 2024, when relevant companies will have to start collecting data and information to be published in their 2025 annual reports or sustainability disclosures. The directive will demand additional reporting effort not only for large companies but also for mid and small-sized corporates.
