Tackling Greenwashing - Enhancing Transparency and Sustainability

Tackling Greenwashing - Enhancing Transparency and Sustainability

The European Insurance and Occupational Pensions Authority (EIOPA) has identified the issue of greenwashing in the insurance and pensions sectors. Greenwashing refers to the practice of making misleading sustainability-related claims or communications that do not accurately reflect the actual sustainability profile of an entity, product, or service.

Greenwashing can occur at various stages of the financial value chain, including manufacturing, delivery, and product or scheme management. It can take different forms, such as selective disclosure, empty claims, omission, lack of clarity, inconsistency, and misleading imagery.

To address greenwashing risks, the European Union has implemented regulations like the Sustainable Finance Disclosure Regulation (SFDR), Taxonomy Regulation, and Insurance Distribution Directive (IDD) that include sustainability-related requirements. These regulations aim to increase transparency and prevent misleading claims in the insurance and pensions sectors.

The report by EIOPA highlights the limitations of existing definitions and regulations in effectively addressing greenwashing. The ESAs (EIOPA, European Banking Authority, and European Securities and Markets Authority) propose a common understanding of greenwashing and emphasize the need to prevent misleading sustainability claims.

The supervisory activities carried out by national competent authorities (NCAs) in the insurance and pension sectors focus on preventing and mitigating greenwashing risks. Some NCAs have reported dedicating resources specifically to sustainability-related supervisory tasks. However, challenges exist, including unclear regulatory frameworks, limited resources, and difficulties in detecting and collecting information on greenwashing occurrences.

The current regulatory framework for sustainable investments and greenwashing has several identified shortcomings. These include a lack of clarity in the definition of sustainable investments, ambiguity in the assessment of the "do no significant harm" principle, challenges in determining whether products genuinely promote environmental or social factors, and insufficient thresholds for sustainable investment objectives.

The report concludes that improvements are needed to address inconsistencies, enhance transparency, and mitigate the risk of greenwashing in sustainable investments.

Overall, the focus is on increasing transparency, providing accurate disclosures, and ensuring genuine commitment to sustainability in the insurance and pensions sectors to prevent greenwashing and promote a more sustainable economy.

A link to the full report can be found here: EIOPA

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