The International Capital Market Association has criticised European regulators’ investigation of greenwashing. ICMA, which administers the Green Bond Principles and other voluntary codes in sustainable finance, charged that the European Supervisory Agencies’ recent call for evidence is too broad and could lead to further regulatory complexity.
This makes it “unhelpful in the context of developing a regulatory approach to greenwashing”, ICMA said.
The ESAs comprise the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority. In November, they jointly invited “input from stakeholders” on the topic, following a request by the European Commission in May that they assess its scale and frequency.
Evidence would enable regulators “to understand the key features, drivers and risks associated with greenwashing and to collect examples of potential greenwashing practices”, the ESAs said.
They extended the invitation beyond banks and other firms under their supervision to retail investors, consumer associations, NGOs and academics.
Actual deception
ICMA wants regulators to move past what it calls “the broad and generic greenwashing concerns expressed by some stakeholders”. It recommends they focus instead on a “clear, fair, calibrated and actionable” definition.
In its response to the ESAs, ICMA proposed draft language for this. For ESG bonds, it acknowledged potential concerns over lack of ambition, mismanagement of wider sustainable risks, strategic inconsistency and actual deception. For fund products, it pointed to vague or ambiguous responsible investment methodologies, unclear or misleading fund labelling and naming, and – again – actual deception.
This feeds into an argument that regulators should be alive to different types of potential greenwashing.
“We need to move from theory to specifics based on a definition distinguishing intentional and unintentional behaviour,” said Nicholas Pfaff, deputy CEO and head of sustainable finance at ICMA.
Citing “clarity on actionable and evidenced areas of potential concern in the market”, Pfaff called for a “targeted debate on how to address greenwashing fears through best market practice and regulation”.
The association recommended the ESAs endorse voluntary adoption of its sustainable finance principles. It also wants them to call for voluntary alignment with its guidelines for the important category of external reviewers and to consider issuing complementary guidance.
In addition, European regulators should also recognise the equivalence of other jurisdictions’ taxonomies of sustainable activities, ICMA said. This is because the EU taxonomy is not usable for international projects.