13 January 2023

ICMA response to the ESAs' Call for Evidence on greenwashing

ICMA welcomes the opportunity to provide feedback to the European Supervisory Agencies’(ESA) Call for Evidence on greenwashing. This feedback is given on behalf of ICMA and its constituencies, and especially the Executive Committee of the Principles and the Asset Management and Investors Council (AMIC).

Proposed definition of greenwashing for regulatory purposes
The core features as presented in the CfE are excessively broad and therefore unhelpful in the context of developing a regulatory approach to greenwashing. They reflect the current debate around greenwashing that covers a wide range of behaviours from misrepresentation to lack of ambition at both the product level and issuer level. There is also limited allowance for distinguishing between intentional or unintentional behaviour. As it stands, this catch-all approach to greenwashing does not provide a conceptual framework that is either suitable for financial regulation or, arguably for policy making.
Regulators should indeed aim for a clear, fair, calibrated, and actionable definition of greenwashing in the financial sector. A possible definition for consideration could be: “For financial regulatory purposes, greenwashing is a misrepresentation of the sustainability characteristics of a financial product and/or of the sustainable commitments and/or achievements of an issuer that is either intentional or due to gross negligence.”
Understanding the areas of potential concerns in sustainable finance
It is important to distinguish between the concerns expressed by stakeholders and what could be considered as greenwashing for possible regulatory oversight and enforcement. The areas of concern historically expressed for sustainable bonds can be categorised as below.
1.Lack of ambition: For use-of-proceeds (UoPs) bonds, concerns relate to projects or parts ofprojects which are believed to be insufficiently green or sustainable. For SLBs, it applies whensustainability performance targets are perceived as easy to achieve, if not already realised, orclose to a “business as usual” trajectory.
2.Mismanagement of wider sustainable risks: this could occur when an issuer does not have anappropriate process to identify and manage wider environmental/social risks and trade-offs forexample when the primary objective of a sustainable project may not score highly or could evenconflict with other sustainability criteria....

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