Esma and national competent authorities are actively taking action in coordinating supervision in line with the Union Strategy Supervisory Priority on ‘ESG disclosures.’ Photo: Shutterstock

Esma and national competent authorities are actively taking action in coordinating supervision in line with the Union Strategy Supervisory Priority on ‘ESG disclosures.’ Photo: Shutterstock

The European Commission requested input from the three European Supervisory Authorities (ESAs) regarding greenwashing risks and the supervision of sustainable finance policies. In response, the authorities published a joint report on 1 June, emphasising the potential financial risks associated with greenwashing.

One of the key outcomes from the progress report by the ESAs, namely the European Banking authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA) and European Securities and Markets Authority (Esma), addressing the issue of greenwashing in the financial sector is a common understanding of greenwashing that is applicable to market participants in banking, insurance, pensions and financial markets.

According to the ESAs, greenwashing refers to practices where sustainability-related statements, actions or communications fail to accurately represent the underlying sustainability profile of an entity, financial product or financial service.

Such practices can mislead consumers, investors and other market participants.

The ESAs also note that misleading sustainability claims can occur both intentionally and unintentionally, and can apply to entities and products within or outside the EU regulatory framework.

To ensure consumer and investor protection and maintain a trusted environment for sustainable finance, national competent authorities (NCAs) and the ESAs are working together. Given the interconnected nature of the financial system, the ESAs are coordinating their efforts to address greenwashing effectively.


The progress report from the EBA focuses on greenwashing in the banking sector and its impact on banks, investment firms and payment service providers.

The report reveals an increase in potential cases of greenwashing across all sectors, including EU banks. It also highlights that companies are being held more accountable for their environmental policies and climate impact due to increased public attention to climate change.


The report identifies pledges about future environmental, social and governance (ESG) performance as the most vulnerable to greenwashing, followed by ESG strategies and objectives of entities, as well as ESG labels and certificates.

Reputational and operational (litigation) risks are considered to be the most significant impacts of greenwashing, with materiality perceived as low or medium for banks and medium or high for investment firms, but expected to increase in the future.

Future direction

The EBA acknowledges that several regulatory and supervisory measures can help combat greenwashing, such as rules against unfair communication and marketing, the EU sustainable finance framework (including the EU taxonomy and ESG disclosures) and guidelines issued by the EBA.

However, challenges remain in implementing these tools effectively, including the need for adequate data and methodologies.

Additionally, the EBA notes that the sustainable finance regulatory framework is still in development or at an early stage of implementation, which means that some of the benefits of the rules are not yet fully evident.

The final reports, scheduled for publication in May 2024, will provide recommendations, including potential changes to the EU regulatory framework.