The EACB welcomes the opportunity to provide feedback to the ESA’s call for evidence (CfE) on better understanding greenwashing. Generally, the EACB supports the objective of clearly defining greenwashing since claims of this nature have been arising in a context of increasing sustainability-related regulatory developments, increasing companies’ commitments, and substantial needs for funding to support the transition to a sustainable economy. That said, the EACB would like to highlight its key concerns which we think that the ESAs should consider before proceeding with their advice to the European Commission on defining greenwashing:-
- Avoid overregulation: On the one hand Europe should take on a pioneering role on greenwashing but on the other, we must always be mindful of the danger of overregulation. For example, the EBA-initiative to integrate ESG risks in Pillar 1 has resulted in a shift to international banks that are not subject to EU regulations. The EACB thus encourages the ESAs to consider that, from a general perspective, the framework should strive for requirements that are designed in a simple and pragmatic manner. This is necessary to ensure that – particularly at origination – certain products are not flagged as at potential risk of greenwashing only because of the administrative requirements to be fulfilled, instead of focusing on the purpose and substance of the transaction. Furthermore, we would like to remind the ESAs that greenwashing is intrinsically linked to instruments that already exist for misleading claims which leads us to our next point.
- Lead with current regulation: If a provider does not do what he claims to do with the client, this is in principle a deception or fraud unless the miscommunication towards the client is unintentional. Here, too, there are already rules for "classic" financial instruments. MiFID II, for example, already caters for such situations. We thus encourage the ESAs to already consider the concept of greenwashing not just from sustainable finance regulation but from already-existing regimes such as those under consumer policy and investor protection. While acknowledging the ESAs’ mandate limited to the financial sector, we wish to underline that a global definition of greenwashing should also address such risk in the real economy. This is necessary as greenwashing is not inherent solely to financial services, so addressing it in the real economy would reduce greenwashing risk in the financial sector. We note in this regard that the Unfair Commercial Practices Directive (UCPD) is also relevant to address this topic.
- Intentionality or negligence: The EACB agrees that there could be greenwashing analysed in the context of trigger, spreader and receiver but the greenwashing risk of each in the communication chain would need to be discussed only once a greenwashing definition is set, and also considering the role of each player. In the case of co-operative banks there are two considerations, for example: (i) proximity to the real economy of the EU’s countries, regions, localities and communities by way of financing SMEs and families, which helps maintain a lively and sustainable community-focused society; and (ii) the provision of loans by co-operative banks generates funding to finance ESG activities of the clients, and so unlike corporates, banks are not the owner of the underlying asset but rather of the loan which is the liability of the client. Thus the banks rely on other parties’ ESG activities and so should not be subject to greenwashing claims if the communication is done in good faith and without gross negligence, in the case that the bank is identified as a spreader. Therefore, any definition of greenwashing should be on the basis that the claim is being made under situations of intentionality and/or negligence.
- Improve the sustainable finance regulatory framework: We thus consider that in order to avoid situations of unintentional greenwashing, the current sustainable finance regulatory framework (whilst being extensively developed in so few years) still has to be improved in order to avoid current challenges being experienced in the ongoing implementation by the industry. A firm acting in good faith to comply with its legal requirements or voluntary frameworks should not be at risk of greenwashing due to unclear, inconsistent or unenforceable sustainable finance regulation. Such scenario may lead to reputational risk or even deter financial institutions from increasing transition and sustainability financing.
- Level playing field: The markets are already used to various standards such as the green and social bond standards by ICMA. It is pertinent that there is no competitive disadvantages to defining greenwashing in such an unstable regulatory environment in the context of sustainable finance. It is important that there is a level playing field on a global scale when it comes to greenwashing even though we support the EU’s proactiveness in the green transition. This level playing field is also important to note between Member States. We note situations of gold-plating which would create a situation where comparability of greenwashing claims would not be possible within the EU if allowed. Furthermore, international and European market standards that are widely used are already great contributors to the mitigation of greenwashing risk. We urge the ESAs to consider avoiding a situation where the distribution of such reputable products before the entry into force of a greenwashing definition, would lead to a greenwashing claim. Grandfathering should apply in such situations.
- Timeline: Finally, we wonder if this exercise is a bit premature considering that the current sustainable finance regulatory framework is a moving target, and thus, our members are lacking experience to provide a comprehensive assessment of the functionality and shortcomings of the existing regulatory framework. The short timeframe for response to this call for evidence has made it impossible for our members to fully contribute to this initiative but we still wished to provide our feedback at least at a high level. We thus hope that there will be further formal and informal opportunities for stakeholders to contribute on greenwashing after the May 2023 progress report by the ESAs.