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‘Greenwashing’ or the Need to Define Positively
Greenwashing captures the attention of regulators and the market itself
The model of sustainable finance projected by the policies of the European Union (EU) is gaining increasing relevance, alongside greater complexity and technicality. At this moment, when regulation and ESG (environmental, social, and governance) methodologies are under development, and the need for technical knowledge is increasing, the phenomenon known as greenwashing has captured the attention of supervisors, regulators, and the financial sector itself.
Greenwashing (in an attempt to translate this expression into our language, we could resort to ecoblanqueo or even ecopostureo if we opted for a more colloquial term that effectively expresses what is intended to be conceptualized) is perceived as one of the greatest risks to investor confidence and thus as a threat to achieving the common objective of evolving the EU’s productive system towards a long-term sustainable model.
The European Securities and Markets Authority has defined the concept as the set of market practices regarding sustainability disclosure that do not adequately reflect the risks and sustainability impacts associated with an issuer or financial instrument. This is a definition that may initially seem simple, but which, once delved into, proves to be extremely complex. Indeed, and despite what one might deduce from the term itself (green-washing), it does not appear to be limited to environmental factors, but rather aspires to also encompass social (social-washing) and governance (governance-washing). Other aspects currently under discussion relate to intentionality (can an unintentional behavior be reproached as greenwashing?); the different roles, and consequently levels of responsibility, that should be assigned to different actors; or how to treat the wide variety of cases that may arise throughout the value chain. Clarifying these uncertainties is urgent.
Finresp (Center for Responsible and Sustainable Finance of Spain) considers itself concerned with this debate. Finresp was established in 2019 as a federation of Spanish financial associations (AEB, CECA, UNACC, Unespa, and Inverco) to promote sustainability in the economic fabric of our country. Due to our size and strategic importance within the economic system, due to our ESG commitment and its reputational impact, we believe we must position ourselves and constructively contribute our vision.
The European Commission has already specified its expectations regarding the role of supervisory bodies in identifying, preventing, investigating, sanctioning, and remediating greenwashing. In May 2022, it requested contributions from the three European Supervisory Authorities (ESA by its English acronym). In November, these authorities launched a consultation to all interested parties (call for evidence) aimed at enhancing the understanding of the concept and identifying potential cases. Once this process is completed, an report is expected to be published in May 2023.
As a contribution to this debate, we at Finresp believe that having a consensual, understandable definition based on scientific criteria that clarifies which investments can be considered sustainable is an essential prerequisite for the formation of a framework and rules that provide legal certainty, credibility, and transparency.
A first difficulty in this regard has arisen from the extensive regulatory agenda dictated in recent years (which is still far from completion). The concept of sustainability (or, more precisely, sustainable investment) has been approached from different perspectives: transparency, the marketing of products, or reporting, among others. In each of these areas, different assumptions were made, resulting in inevitable nuances in definitions and regulatory treatments, which today prevent having a unified and fully coherent concept of the phenomenon. A decisive contribution towards a harmonized vision lies in the development of taxonomies. The environmental pillar is the one that has progressed the most quickly, although this taxonomy is still not fully consolidated, as it is a
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