The European Banking Authority has cautioned that firms' reputational and litigation risks are most significant when engaging in greenwashing.
The European Banking Authority declared today that there had been a significant escalation in potential occurrences of greenwashing across all financial industries, particularly in banking and investment.
The European Banking Authority's most recent study revealed that promises about environmental, social, and corporate governance (ESG) performance are at the highest risk of greenwashing, trailed by ESG tactics, company aims, and ESG labels and certifications.
The regulator issued a caution notice due to discovering that greenwashing has the most harmful effects on a company's standing and the potential for legal issues.
The EBA suggested that the level of greenwashing seen in banks is presently considered either low or medium, while investment companies are seen as having a medium to high level. Though, the EBA anticipated this would change, and the level of greenwashing would likely increase shortly.
The governing body noted increased responsibility for climate issues, as the public's focus on global warming has resulted in businesses bearing greater responsibility for their environmental practices, climate influence and disclosures.
The EBA has discovered that present and proposed regulations and oversight may help to address the apprehensions about greenwashing. These include rules on prescribing unfair communication and marketing, the EU sustainable finance structure - including the EU taxonomy and ESG disclosures - and the EBA's guidelines.
The regulator cautioned that there are difficulties in ensuring the appropriate tools are utilized to combat greenwashing, such as having sufficient data and methodologies.
The European Banking Authority has observed that the regulatory scheme for sustainable finance is still in its early stages, so the advantages of specific regulations have yet to become apparent.