09 February 2023

BEUC: Green washing in retail financial services

Greenwashing is rife in retail financial services. The European Commission has recognised this, and in May 2022 it asked the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority to look into the matter.

In November 2022, the three supervisory authorities issued a joint call for evidence about greenwashing, with a deadline for January 2023.
BEUC welcomes this effort to better understand greenwashing in financial services, a growing problem that requires supervisory and legislative remedies to protect consumers from misleading product marketing.1 We have compiled evidence of greenwashing practices from our member organisations across Europe. This paper provides an overview of BEUCs position.
Our members' input has shed light on the drivers and enablers of greenwashing. Regulatory shortcomings, insufficient standardisation, the use of relatively new and vague terms and the unavailability of reliable data facilitate greenwashing, especially in the investment funds industry. There is strong consumer demand for sustainable investments, but also a shortage of genuinely sustainable investment opportunities. All this creates incentives for, and the possibility of, greenwashing by sellers of investment products, many of which are not nearly as sustainable as claimed. The worst are investment products that promise a positive 'impact', without providing proof or being clear about what ‘impact’ means.
However, greenwashing is not restricted to false promises, but includes 'soft' techniques to influence consumers, like putting pictures of unspoilt nature on websites that market financial products. We also found that the net-zero pledges by many financial institutions, in particular banks and asset managers, are often rhetoric not matched by action.
The EU legislator bears responsibility for tackling the regulatory enablers of greenwashing. The Regulation on Sustainability-Related Financial Disclosures (SFDR) needs fixing urgently, through requiring that all investment products that claim sustainability exclude certain business activities and through other measures. The EU legislator should also introduce a regulation for an ESG benchmark label to improve the sustainability of investment products that track a benchmark index as well as a regulatory framework for ESG ratings to improve the sustainability data with which financial services providers have to work. They should also ban inducements in financial advice to improve competition in the sustainable investment industry.
Supervisory authorities should improve the reliability of marketing information for sustainable financial products through guidelines and recommendations, disallow or curtail the use of ill-defined or misleading terms like 'impact’ and explore together with the consumer authorities whether the Unfair Commercial Practices Directive can be used to take action against misleading claims.

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