Investors push EU regulators to focus on intentional greenwashing

Sustainable finance frameworks have triggered a 'lack of recognition' for transition finance which means it could be perceived as greenwashing, warns Amundi.

EU flags in front of European Commission building in Brussels

Major European asset managers have asked EU financial watchdogs to distinguish between intentional and unintentional greenwashing in response to a consultation on the issue. 

The survey was organised by the European Supervisory Authorities (ESAs) – made up of EIOPA, EBA and ESMA – earlier this year to inform their views on what constituted greenwashing. The regulators delivered advice to the European Commission (EC) in June based on the feedback but this is the first time they have been made public.

Europe’s largest asset manager Amundi, stated what while it “broadly” agreed with the core characteristics of greenwashing as described by the EU regulatory trio, it disagreed with the regulators’ position on unintentional greenwashing.  

In the consultation document, the ESAs put forward the idea that “greenwashing can be either intentional or unintentional” as one its core characteristics, a view reflected in their subsequent advice to the EC.

Taking issue with this perspective, Amundi wrote that greenwashing “may only take place when there is intentionality or negligence”.

A firm should not be at risk of such allegations, it continued, if failure is due to circumstances over which it has no control, including regulatory uncertainty. On this point it added that the “partial and heterogeneous existing definition framework for a Sustainable Investment is triggering lack of recognition of transition-oriented investment strategies as sustainable investment strategies and, as a result, a misperception of greenwashing”.

This view was echoed by Candriam which told the ESAs that its definition of greenwashing risk “should be limited to the situations where greenwashing risk results from fault (ie intentionally) and/or negligence”.

“Sanctions should be envisaged only in cases of intentional greenwashing,” the European manager said. 

UK fund manager Schroders also “strongly” urged the ESAs to “distinguish clearly between ‘greenwashing’ as deliberately or negligently misleading investors and all other forms in the context of misconceiving or misinterpreting sustainable features and regulations”.

Instances of misinterpretation of regulation “in the absence of clear guidance” should not be considered greenwashing, “provided that corrections are made subsequently”. Schroders cited the example of Article 9 funds under the EU’s Sustainable Finance Disclosure Regulation (SFDR), which were subject to additional guidance in June 2022.

“The fact that products were reclassified due to the evolution of the regulation does not mean greenwashing took place in each case prior to such reclassification,” it stated.  

The distinction between intentional and unintentional greenwashing was also raised by Australian-based manager, First Sentier Investors, which told the ESAs it would welcome “any clarity” as to “how enforcement action would/may differ for instances of unintentional greenwashing versus intentional greenwashing”.

“We see intention to make misleading claims as very different to unintentional errors or misinterpretations,” it added.  

More than a definition required 

In their responses to the commission, the ESAs put forward a definition of greenwashing. But Dutch bank Triodos stated in its consultation response that more than a definition would be needed to tackle the issue. What is required, it wrote, was “absolute clarity over the types of economic activities and investments that are not sustainable and should not find a place in various claims of greenness or sustainability – especially at the product-level”. 

For this, it continued, “we need a Taxonomy of activities that cause significant harm” – an idea that was raised by the EU’s Platform on Sustainable Finance expert group in 2022 in its report on extending the EU green taxonomy.  

On the EU’s anti-greenwashing legislation the SFDR, Triodos stated that if the EU is unsatisfied with the current regime, the “level 1 text should be changed.” 

“Tinkering at the margins such as with greenwashing definitions or funds names will not solve a lack of clarity in the level 1 text,” it wrote. 

Moreover, it added that since SFDR is “just a disclosure regime,” enforcement can only be based on a breach of the disclosure rules alone.