The increase in accusations of greenwashing and the necessary regulatory responses
The last two years have seen a sharp increase in accusations of greenwashing levelled at certain players, forcing regulators to respond firmly in order to protect end investors and regain their trust.
In June 2024, ESMA published its final report on greenwashing, with the aim of providing the competent national authorities with guidelines for interpreting this concept. It was established that the concept of money laundering should be interpreted uniformly across Europe, that it can be intentional or unintentional, apply to all economic sectors and, above all, be triggered by third parties and not just by the target entity.
The last two years have seen a sharp increase in accusations of greenwashing levelled at certain companies.
In addition to these definitions, ESMA has reaffirmed its intention to regulate the use of the terms ESG or sustainability in fund names. As a result, investment funds wishing to use these terms will have to comply with obligations relating to the holding of investments used to respect the social and environmental characteristics highlighted.
Despite this initiative, greenwashing is creating a climate of mistrust towards so-called sustainable financial products.
Products that are still little known and whose credibility is being called into question
Distrust of so-called sustainable financial products is essentially due to two factors, namely the greenwashing mentioned above, but also limited knowledge of these products.
The Climate Finance Label and the Green Bond Label, both launched by the Luxembourg labelling agency to promote the transparency of climate investments, are still little known and enjoy only moderate levels of confidence.
In addition, a study conducted by the Forum for Responsible Investment (FIR) in 2021 highlighted the limited appeal of sustainable investment, since only 13% of a sample of 1,000 people had already made a responsible investment.
The lack of confidence in so-called sustainable financial products is essentially due to two factors, namely the aforementioned greenwashing, but also limited knowledge of these products.
It is to be feared that suspicions about this type of product are gaining ground, given that the giants of Wall Street in the United States have recently committed themselves to limiting ESG standards in financial matters. For example, last spring, five major US asset managers decided to withdraw from the Climate Action 100+, even though this coalition strengthened the obligations on investors and required companies to take more action in favour of the climate.
Regulatory uncertainties
Finally, the stagnation of sustainable finance can also be explained by European regulations that are sometimes described as too complex for financial players. The number of European regulatory initiatives has multiplied in recent years, giving the impression of fragmentation.
The taxonomy, the Sustainable Finance Disclosure Regulation (SFDR), the Corporate Sustainability Reporting Directive (CSRD), the Carbon Border Adjustment Mechanism (CBAM) and the Corporate Sustainability Due Diligence Directive (CS3D) are all standards that apply to the financial sector, but which have difficulty in encouraging the adoption of sustainable practices because of the uncertainties they engender.
These uncertainties are mainly linked to the fact that the aforementioned texts are struggling to be transposed into national law. For example, at the Fedil's New Year's ceremony, Prime Minister Luc Frieden announced a freeze on transposition of the CSRD directive.
What's more, European legislation is constantly being revised. On 26 February this year, the European Commission presented its draft Omnibus Directive aimed at simplifying European regulations in this area and increasing the competitiveness of European companies. Among the key measures, the scope of the CSRD directive has been restricted, resulting in the exclusion of 80% of the companies initially concerned, and the deadlines for transposing the CS3D directive and reporting obligations have been postponed.
As a result, the forthcoming deadlines are as follows:
- Implementation of reporting obligations under the CSRD from 2027, with a second wave in 2028,
- Transposition of the CS3D Directive on due diligence in July 2027 for application from July 2028.
These various obstacles should not be seen as an inevitable setback to the process of sustainable transformation of the financial sector, but rather as a need to develop a rigorous method for gradually supporting the various players in this transition. To this end, the experts at Brucher, Thieltgen and Partners can provide you with legal support in applying the various ESG regulations and complying with your reporting obligations.
Brucher Thieltgen & Partners can assist you with any sustainable finance project or, more generally, with any question relating to ESG legislation/regulations. Please visit brucherlaw.lu or contact our experts directly:
Nicolas Thieltgen, Managing Partner:
Aurélie Dardenne, Legal Advisor: