Greenwashing Report on Sustainable Finance
The International Capital Market Association (ICMA) released a greenwashing report on sustainable finance, aiming to analyze greenwashing issues in the field of sustainable finance and provide recommendations.
Since the release of the Green Bond Principles in 2014, ICMA has conducted extensive research in the areas of sustainable bonds, sustainability-linked loans and sustainable funds. This greenwashing report on sustainable finance summarizes these studies and responds to concerns about greenwashing raised by three European Supervisory Authorities (ESAs).
ICMA’s Perspective on Greenwashing Definition
In greenwashing report on sustainable finance, ICMA believes that ESAs do not need to pay too much attention to the definition of greenwashing. In actual supervision, complex definitions may cause more problems. If the definition is too strict, it may increase the cost of disclosure and have a negative impact on the development of sustainable finance.
ICMA recommends that regulators adopt a clear, fair and regulatory-friendly definition. For example, greenwashing is the distortion of the sustainable characteristics of financial products and the sustainability commitments and achievements of issuers, whether these distortions are intentional or unintentional. This definition can help regulatory agencies identify and supervise greenwashing.
At the same time, ICMA believes that the European Securities and Markets Association (ESMA) already has some regulatory policies in dealing with misleading information and unfair competitive advantages, so there is no need for more regulatory treatment. ESMA also believes that the definition of greenwashing needs to be linked to existing documentation dealing with misleading information. Regarding the misrepresentation issue that stakeholders are most concerned about, ICMA believes that existing financial regulations already include safeguards to prevent misrepresentation. This is not a new issue in the field of sustainable finance, nor is it a new issue in investor protection.
ICMA’s Perspective on Greenwashing Actions
ICMA believes that although the market is concerned about the greenwashing problem, actual data shows that the greenwashing problem of these sustainable financial instruments is not as serious as expected. Take Sustainability Linked Bond (SLB) as an example. Since its launch in 2022, the SLB market size has accounted for 10% of the sustainable bond market. Data from this year show that the number of global SLB bonds issued each quarter is around 40, and the number of disputes has dropped from 9 to 3. Against the background of the gradual improvement of sustainability reporting, greenwashing in the SLB market is declining.
ICMA believes that the issue of greenwashing in the fund sector deserves more attention. These greenwashing phenomena are related to the sustainable investment methods of fund companies, as well as the marketing competition of different funds and the imperfect regulatory framework. Regulators are currently formulating policies on green labels for funds and investigating whether some funds engage in greenwashing.
ICMA’s Recommendations on Greenwashing
ICMA believes that to solve the problem of greenwashing in the field of sustainable finance, the following aspects need to be considered:
- Pay attention to specific greenwashing matters that can be acted upon: Regulators should make judgments on the specific content of some funds such as green labels, without over-analyzing basic information such as the definition of greenwashing.
- Improve information disclosure in the sustainable financial market: The current information disclosure in the sustainable financial market is not sufficient. It is also necessary to improve the information disclosure framework in accordance with multiple regulatory policies to reduce the space for greenwashing.
- Refer to existing regulatory policies: On the issues of greenwashing, misrepresentation and unfair competition, existing investor protection provisions and financial laws can provide guidance for legislators to refer to.
- Improve the operability of international standards: Each jurisdiction can use international standards as a benchmark and formulate regulatory policies that suit its own characteristics to enhance operability.
- Leverage voluntary sustainable finance practices: Organizations including ICMA already provide a number of voluntary sustainable finance practices like Sustainable Bond Principles and Green Bond Principles for stakeholders.