30 January 2023

ALFI provides a targeted response to the ESAs Call for evidence on better understanding greenwashing

ALFI focused on proposing a definition of greenwashing whose main characteristic should be intent. Based on the definition, complementary examples on what should not be considered as greenwashing were provided.

Via this consultation, the ESAs intend to gather input from stakeholders in particular on how to understand the key features, drivers and risks associated with greenwashing. Obtaining a more granular understanding of greenwashing shall help to inform policy making and supervision and help to foster the reliability of sustainability-related claims.

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c) Lack of ESG expertise and skills of market participants. We believe that these aspects should be dealt with by existing regulatory measures and the sectorial regulatory framework.
e) Differing interpretations of the regulatory framework. The piecemeal implementation of SFDR and other incomplete aspects of the sustainable finance (SF) framework have caused significant legal uncertainty, necessarily resulting in differing/changing interpretations of the legal text. It is quite difficult to address greenwashing in a proper way as long as key definitions are still missing (e.g. sustainable investments/promotion of ESG characteristics). Before envisaging any additional legislative initiative relating to greenwashing, it is essential to see how the existing framework can be clarified. Diverging interpretations at national level should be avoided as these can create confusion/inequality/mis-interpretation/mistrust in the EU SF sector.
h) Lack of reliable data. The requirement to disclose data under SFDR but at the same time not yet having the regulatory framework in place (i.e. the staggered application dates in Art. 8 TR DA and the CSRD) to ensure that reliable data is available has been one of the most serious shortcomings of the EU SF framework. Ref. is also made to the speech of Ms Ross on 31 May 2022 stating that “In an ideal world, the disclosures required for financial market participants [FMPs] and financial products would have followed a comprehensive corporate transparency regime. […] Despite these challenges, we need to move ahead urgently with what we have.”
i) Mismatch between retail investors’ expectations and market participants’ ability to deliver real-world impact. As acknowledged by Ms Ross in her speech, “the disclosures to investors in the SFDR are complex by nature and difficult for especially retail investors to understand”. We also received the feedback by some Members that features of funds disclosing under art. 8/9 SFDR/impact funds are often not well understood. In this context, the influence of media should not be underestimated. Financial literacy will help to improve retail investors’ understanding of the nature and main features of financial products and to create realistic expectations about the performance (ref. is made to the ALFI response to the EC RIS consultation). Transparency on methodologies, ESG scoring, data sources etc. also fosters better understanding and is at the same time a major tool to avoid greenwashing.

ALFI

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