Dutch regulator to scrutinise green bond disclosures amid fears of green exaggerations

Move comes as Danish regulator issues improvement orders to eight funds over sustainability disclosures.

Dutch financial regulator AFM has announced plans to undertake a review of the market for ESG-related products and how it is responding to regulatory changes.

A spokesperson for the regulator said it will conduct a review of “disclosures of ESG benchmarks provided by benchmark administrators under [our] supervision”, including climate-transition and Paris-aligned benchmarks.  

Another major focus for the regulator will be the transparency of green and sustainability-linked bonds.

The spokesperson said that one of AFM’s main areas of concern is issuers “pretending to be more sustainable than they are” and providing insufficient disclosures on ESG topics. In the absence of specific regulation, AFM views it as important that investors have more information to be able to assess the sustainability of issuers, products and services.  

While the regulator does not currently see an issue with financial market participants claiming “through their prospectuses” to be green without any substance, according to the spokesperson, it does see a wide variety in the degree of “greenness” of products and issuers claiming to be green.

The AFM attributes this in part to a lack of standard market definitions. “[We place] great importance on the transparency on how green claims are being fulfilled,” the spokesperson said. “Claims about the greenness of a product should be appropriate, substantively correct and in proportion to the actual sustainability effort. The AFM will check ‘green’ claims based on these aspects.” 

The spokesperson confirmed that the regulator has intervened on a small number of occasions in sustainable bond prospectuses where the prospectus did not meet its expectations on disclosures surrounding risk factors, or where the use of proceeds allowed funds to be spent on non-green projects.

The AFM’s approach mirrors that of the UK’s FCA, which has intervened in a limited number of fund and website disclosures, but as of July last year had yet to conduct any formal greenwashing investigations. 

Danish regulator intervenes 

In related news, the Danish Financial Supervisory Authority (DFSA) has put eight Article 9 funds on notice over alleged insufficient disclosures on sustainability issues. 

Announced on Friday, the orders are the result of a thematic review conducted by the DFSA of the sustainability disclosures in the funds’ prospectuses and key investor information documents (KIIDs).

The regulator said that several prospectuses in the group contained insufficient information on how they ensured investments do not significantly harm any social or environmental objectives.  

It also noted that several did not include a description of the sustainable investment objectives of the funds or included a description of the objectives which was not consistent with the objective stated in the prospectus. Nykredit’s sustainable equity fund, for instance, was flagged for not mentioning its sustainable objectives in the KIID.

The eight funds are managed by Danske Invest, Formuepleje, Sparinvest, Nykredit, Nordea Funds, and SEB Invest. They include Nykredit’s green bond fund and a DKr4.1 billion ($596 million; €556 million) emerging markets equity fund managed by Danske’s index division.  

”It is important for consumers and investors that they receive sustainability information in a manner which is comprehensible and adequate,” said Henrik Brarup Damgaard, head of the regulator’s ESG supervision unit. “It is especially important for the so-called ‘fully sustainable’ funds, where it must be expected that this information constitutes a key component in the investment decision.” 

This is not the first time that the Danish regulator has issued orders related to SFDR. In December, it put four pension and insurance firms on notice over the lack of detail regarding sustainability risks within their remuneration policies.

Some managers of the affected funds said the concerns had already been addressed by subsequent updates to fund documentation.  

Danske Invest managing director Robert Mikkelstrup said the prospectus of its fund had been updated since the FSA’s inspection in 2022 as a result of new requirements, and that the manager would “continue our efforts to communicate clearly to our investors”.  

Likewise, Rasmus Eske Bruun, head of Nordea Funds Danish Branch, told Responsible Investor that the institution believes the matters pointed out in the DFSA’s investigation were already remedied as part of such an update in August 2022, “and the requirements are consequently complied with today”.

A spokesperson for Nykredit and its subsidiary Sparinvest, which account for four of the eight funds, said the firms had already taken necessary steps to align with DFSA recommendations by the end of 2022. 

A spokesperson for Formuepleje told RI it had “immediately complied” with the DFSA’s input, while a spokesperson for SEBinvest said it accepted the judgement and has “already aligned the prospectus with the recommendations”. 

The regulator said it will publish a memorandum detailing “best practice” in the area later this year as a follow-up to the review.