Fund groups warn over EU legal definition of 'greenwashing'

Investment (THE)

16/01/2023 13:50

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      Follows ESMA call for input on definition of practice
    

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      Fund groups say no need to define in law
    

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      Cite complexity, broad scope, existing tools to remedy
    

  
    By Simon Jessop and Huw Jones
       LONDON, Jan 16 (Reuters) - European Union regulators
should not define greenwashing in law, fund industry groups have
told the bloc's markets watchdog, citing concerns this would
complicate a sector in "constant flux".
    Trillions of dollars have flowed into investments claiming
to be climate-friendly, but there have been few sanctions for
greenwashing, or exaggerated green credentials.
    Regulators say sanctioning greenwashing could be easier with
a legal definition, though the term is often used more broadly
to describe deliberate or negligent practices regarding other
environmental, social and governance (ESG)-related issues.
    The European Securities and Markets Authority (ESMA) and the
bloc's banking and insurance watchdogs have sought industry
views on legally defining greenwashing.
    In its response, the U.S.-based Investment Company Institute
(ICI), which represents investment funds, said
sustainability-related statements, actions, omissions and
communications could be misleading, either intentionally or
unintentionally, at the entity, product or service level.
    "Rather than seeking to define 'greenwashing' and thereby
creating a new legal term, we recommend instead that EU
authorities describe the conduct or circumstances of concern,"
ICI said.
    "Seeking to adopt a general definition of greenwashing or
enshrine it in legislation would be counterproductive."
    The European Fund and Asset Management Association (EFAMA)
said the EU should use existing rules and tools to combat
greenwashing, and not increase complexity by introducing a new
definition detached from rules already in place.
    EFAMA also pointed to the industry's reliance on third-party
data, including from companies and ESG rating companies, that
was not in the control of asset managers.
    "Considering the current degree of regulatory uncertainty
and ongoing evolution, we must be careful to not apply the term
greenwashing too broadly," said Anyve Arakelijan, Regulatory
Policy Adviser at EFAMA.
    "Strengthening the understanding of what constitutes
greenwashing and having harmonised supervisory action to address
this risk is crucial."
    While major regulators have so far baulked at defining
greenwashing in law, they are increasingly using their existing
powers and also considering new laws in areas such as
disclosure.
    Britain's financial watchdog, for example, said in October
it planned to bring in an anti-greenwashing rule for all firms.
In the United States, meanwhile, several companies including BNY
Mellon have been fined for misleading investors.
 (Reporting by Simon Jessop
Editing by Mark Potter)
 ((simon.jessop@thomsonreuters.com; +44 (0) 207 542 5052;
Reuters Messaging: Reuters Messaging:
simon.jessop.thomsonreuters.com@reuters.net))