The European Securities and Markets Authority (ESMA) said today EU rules are needed to regulate ratings on the environmental, social and governance (ESG) aspects of companies to avoid investors being deceived by “greenwashing”.
Asset managers use ESG ratings to make “green” environmentally conscious investment decisions.
Greenwashing refers to inaccurate claims that investments are sustainable and climate friendly.
In a statement the ESMA said: “The market for ESG ratings and other assessment tools is currently unregulated and unsupervised.
“When combined with increasing regulatory demands for consideration of ESG information, there are increased risks of greenwashing, capital misallocation and products mis-selling.”
Yesterday the European Commission released the results of screening of company websites for “greenwashing”, showing in 42 per cent of cases claims of environmental sustainality were exaggerated.
In December French and Dutch securities regulators, respectively the Autorité des marchés financiers (AMF) and the Netherlands Authority for the Financial Markets (AFM) had already called for further EU rules to prevent greenwashing.
They said: “While their influence is expected to grow considerably, providers of sustainability related services remain largely unregulated.”
A European regulatory official said the bloc would be introducing rules for asset managers on ESG disclosures on 10 March 2021, along with a “taxonomy” to provide clear legal definitions on sustainability that will make greenwashing far harder.