Asset Management & Investment Funds: EU & International Developments – July 2022

ESAs to report on greenwashing risks and supervision of sustainable finance policies.

The European Commission has requested each of the European Supervisory Authorities (ESAs), individually and in a coordinated manner, to report on several aspects related to greenwashing and its related risks and on the implementation, supervision and enforcement of sustainable finance policies aimed at preventing greenwashing. The ESAs are to provide their respective input by way of a progress report in 12 months and final report in 24 months.

The Commission notes that

  • supervisors play a key role in monitoring greenwashing risks and compliance with EU sustainable finance legislation
  • it is within the mandate of supervisors to ensure that investors and consumers are protected against unsubstantiated or exaggerated sustainability claims, throughout the investment chain and product life cycle
  • ‘The Strategy on Financing the Transition to a Sustainable Economy' outlines steps to monitor greenwashing risks and assess whether supervisory mandates and powers are effective in addressing these greenwashing risks in cooperation with the ESAs

The ESAs are requested to use a common terminology on greenwashing across the sectors and highlight possible deviations to take into account sectoral specificities. As part of this, the ESAs are requested to propose a common high-level understanding of the key features of the greenwashing and complement that with more specific sectorial definitions where relevant and necessary.

The ESAs are requested to provide input on:

  • the occurrence of greenwashing
  • potential for greenwashing risks
  • an overview and assessment of supervisory practices, experience, convergence and supervisory capacities related to the prevention of greenwashing through available tools and powers (including whether existing tools and data are sufficient to adequately monitor and address greenwashing)
  • suggestions for improvement of the regulatory framework

The Commission seeks the input of the ESAs on supervision and enforcement both from a legal and a practical point of view.

Sanctions

The European Council is requesting European Parliament consent to add the violation of restrictive measures to the list of EU crimes.

Currently member states have different definitions of what constitutes a violation of restrictive measures and what penalties should be applied in the event of violation. This could lead to different degrees of enforcement of sanctions and a risk of these measures being circumvented, potentially allowing sanctioned persons to continue accessing their assets and supporting regimes targeted by EU measures.

A unanimous decision to add the violation of restrictive measures to the list of EU crimes will allow, as a second step, the adoption of a directive containing minimum rules concerning the definition of criminal offences and penalties for the violation of EU restrictive measures.

Once the Parliament has given its consent and internal national procedures have been finalised, the decision can be formally adopted unanimously by the Council.

For more information please contact a member of the Asset Management & Investment Funds team.

Date published: 19 July 2022