A question of intent

In a response to the European Supervisory Authorities’ (ESA) recent consultation on the risk of greenwashing, EFAMA has underlined the main attributes of intentional greenwashing.

The paper emphasised two key components of greenwashing assessments: knowingly misrepresenting sustainability-related practices or features of a product, and the objective to deceive the recipient of the sustainability claim.

In the event that there is no intention to mislead the receiver, a case for greenwashing may still be argued for where there is gross negligence on the part of the financial market participants making the sustainability claim, according to EFAMA.

The association also identified the need to address any regulatory gaps relating to greenwashing before proposing new legislation, in an attempt to encourage clarity across Europe and overseas, rather than confusion and counterproductive market divergence.

Anyve Arakelijan, regulatory policy adviser at EFAMA, stated: “Intentionally misleading behaviour relating to sustainable investments should not be tolerated, in the same way that other misleading practices regarding risk or performance are not tolerated. However, considering the current degree of regulatory uncertainty and ongoing evolution, we must be careful to not apply the term ‘greenwashing’ too broadly. Strengthening the understanding of what constitutes greenwashing and having harmonised supervisory action to address this risk is crucial. Otherwise, investor confidence in sustainable finance could be severely undermined, threatening efforts to transition to a more sustainable economy.”

Read EFAMA’s full position paper here to find out more.