Alleged incidents of greenwashing within the EU’s financial sector increased by almost 14 per cent last year compared to 2022, according to the European Banking Authority’s latest and final progress report on greenwashing monitoring and supervision.
Incidents of alleged greenwashing have been steadily rising in the sector since 2018, according to the EBA’s report, increasing more than five-fold from 40 cases in 2018, to 206 cases in 2022.
However, the EU financial sector’s share of alleged greenwashing cases involving an EU company fell from 23 per cent in 2022 to 21 per cent in 2023. Within the group, EU banks’ share fell slightly from 9 per cent in 2022 to 8 per cent in 2023.
The figures on alleged greenwashing incidents in the EBA’s report are based on data collated by RepRisk, which gathers “risk incidents” (criticism and events) of companies associated with misleading communication around ESG issues. RepRisk does not verify or validate reported allegations, but it regularly reviews classification of sources, it said.
However, a 2022 survey of EU national competent authorities conducted by the EBA revealed that more than half perceived the materiality or “relevance” of greenwashing risk for credit institutions to be low or medium (30 per cent), a perception that didn’t change in 2023, according to the EBA. Last year, only one of 29 NCAs surveyed by the EBA reported receiving a greenwashing complaint. But seven NCAs identified “occurrences of actual or potential” greenwashing since November 2022.
“The three most common topics subject to greenwashing claims in the EU financial sector, including EU banks, are climate change, impact on landscape and biodiversity, and impact on local communities, which is in line with the trends observed in the other sectors,” the EBA’s report states.
Globally, according to RepRisk data, the financial sector accounted for approximately 16 per cent of alleged greenwashing cases in 2023, including 3 per cent for banks, 1 per cent for insurance, and 12 per cent for other financial services companies. Across all sectors, more than 1,000 alleged incidents of greenwashing or misleading communication on ESG topics were reported in the EU last year, an increase of 26 per cent compared to 2022. Alleged greenwashing cases increased by 6 per cent in European countries not part of the EU last year.
Cases in North America fell by almost 7 per cent in the same period, according to the EBA’s report. “The slight decline in North America can possibly be explained with the backlash in ESG matters and thus less reporting of the total number of potential cases of greenwashing across all sectors,” the EBA’s report stated.
The biggest increase (51.7 per cent) was observed in countries outside of North America, Europe and Asia.
The drivers for greenwashing are “multifaceted and complex”, the EBA said in its report, and include a considerable rise in demand for products with sustainability features, a fast-evolving regulatory landscape, inconsistencies or lack of clarity of certain regulatory provisions and concepts, data quality and availability issues, lack of expertise and skills within the financial system, and financial literacy gaps.
The EBA said greenwashing may also occur in relation to the application of specific disclosures under EU sustainable finance regulatory frameworks. It highlighted “the lack of available and reliable data to meet new ESG disclosure requirements” as a specific challenge for financial institutions. These data shortcomings could potentially create instances of “unintentional greenwashing”, as initial reporting may be based on estimates and not standardised information, which could undermine the benefits that these disclosures were designed to bring, the EBA said.
The Corporate Sustainability Reporting Directive should increase the availability of sustainability data from organisations’ customers, the EBA said, through the European Sustainability Reporting Standards and, at the international level, the International Sustainability Standards Board.
Financial institutions also reported “usability issues” with respect to the EU’s taxonomy, which classifies green activities that support the European Green Deal. “Overcoming these usability challenges will be key for the EU taxonomy to fulfil its potential as an effective mitigation tool for greenwashing,” the EBA stated.
The EBA also highlighted the potential for greenwashing to occur in specific ESG financial products such as sustainability-linked loans, which it said is not easy to measure given the SLL market is largely unregulated and not very transparent. “At the same time there are indications that SLLs have in some cases been used as a marketing tool only, creating regulatory and reputational risk,” it said.
The EBA report was one of three European supervisory authority progress reports taking stock of greenwashing risks in the financial sector published on June 4. The other two reports were published by the European Securities Market Authority and the European Insurance and Occupational Pensions Authority.
All three ESAs have called for enhanced supervision and improved market practices on sustainability-related claims, adding that addressing greenwashing requires “a global response, involving close co-operation among financial supervisors and the development of interoperable standards for sustainability disclosures”.
