The practice of greenwashing, or marketing a product as environmentally friendly, when in fact basic environmental standards have not been met, can take many forms including misleading labels and unsubstantiated/vague claims, meaningless catchwords, etc. with the aim of making a product or company seem greener and more socially responsible than it really is, amounting to nothing more than a marketing gimmick.
BETTER FINANCE is of the view that greenwashing is a major risk for retail non-professional investors and others alike, and as such must be addressed thoroughly in order to avoid reduced consumer trust and confidence in financial markets. Studies already show that investors are increasingly more cautious with regard to investment advice for sustainable products. The impact of greenwashing can lead to different negative outcomes such as erecting barriers to responsible investment, unfair competition, and reduced capital for sustainable objectives among others. Greenwashing has been identified as leading to a ‘loss of confidence of retail investors who could be discouraged to invest in green assets [and to] potentially reduced investment in sustainable development’.
BETTER FINANCE supports the definition proposed by ESMA in its Sustainable Finance Roadmap 2022-2024, namely “market practices, both intentional and unintentional, whereby the publicly disclosed sustainability profile of an issuer and the characteristics and/or objectives of a financial instrument or a financial product either by action or omission do not properly reflect the underlying sustainability risks and impacts associated to that issuer, financial instrument or financial product".
The only EU definition of “greenwashing” with a legal basis seems to be the one found in recital 11 of the Taxonomy regulation EU 2020/852: “[Greenwashing is] the practice of gaining an unfair
competitive advantage by marketing a financial product as environmentally friendly, when in fact basic environmental standards have not been met".
Based on the above, BETTER FINANCE would like to propose a more practical definition for supervision and enforcement purposes:
Overall, BETTER FINANCE understands greenwashing as the falsification of a company/product’s intentional and consequential effect on the environment and/or society, through e.g. marketing campaigns which make the company/product appear more ESG beneficial than they really are. Thus greenwashing also refers to the act of misleading consumers/retail investors/end users regarding the environmental, social, and governance claims of a given company or of investment product or service across present and future scenarios.