Regulators lack resources to tackle greenwashing, says EU watchdog

By Huw Jones

LONDON (Reuters) -Market watchdogs across the European Union have punished few instances of “greenwashing” by financial firms, partly because regulators don’t have enough resources to use their powers, the EU’s securities regulator said on Tuesday.

Billions of euros have flowed into investments and companies that tout their green credentials, raising concerns among regulators about greenwashing, or exaggerated climate-friendly claims.

The European Securities and Markets Authority (ESMA) said that local regulators – known as national competent authorities, or NCAs – that monitor day-to-day compliance with EU rules have reported only a limited number of actual or potential occurrences of greenwashing.

“Formal enforcement decisions are, up to now, limited as well,” ESMA said in a statement, adding that this is partly due to NCAs facing constraints on their resources, access to expertise, and to good quality data.

ESMA and local regulators have begun to build up their capacity to deal with greenwashing, such as by improved training of staff. “Most NCAs consider, however, that their resources are not sufficient,” ESMA said.

The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority also issued reports on greenwashing on Tuesday in their respective sectors.

EBA said the number of alleged greenwashing cases in the EU rose by 26% in 2023 from 2022, driven by more communications and products linked to sustainability, adding that external checks of these instances could help banks and others with compliance.

“External reviews can help institutions mitigate the risk of greenwashing by offering verification, facilitating the good application of green principles and standards to financial products, and demonstrating a commitment to transparency.”

ESMA highlighted differing levels of greenwashing risks across the sustainable investment chain (SIVC).

The watchdog said EU rules provide appropriate powers to tackle greenwashing, including a core securities law known as MiFID, which requires communication between firms and customers to be fair, clear and not misleading, ESMA said.

The EU has more recently rolled out mandatory climate-related disclosures for asset managers, listed companies and green bond issuance, giving regulators additional yardsticks to guard against greenwashing.

“Greenwashing can also be addressed by acting on infringements against a series of specific sustainability-related requirements introduced in the EU in recent years,” ESMA said.

(Reporting by Huw Jones; editing by Christina Fincher and Mark Heinrich)