The chair of the EU’s securities watchdog Verena Ross has said she believes national competent authorities (NCAs) will take enforcement action on greenwashing but that it will likely “take some time”.
“We are conscious that there has not been a lot of enforcement action yet,” Ross told delegates at the RI Europe conference in London on Wednesday. “But at the same time, I think that to some degree that is natural. We’ve only started the supervisory approach over the last year or two.”
She added: “I’m absolutely convinced that the EU national supervisors will also take enforcement actions in this space.”
But she noted the need to recognise the “learning curve” authorities are on with regards to greenwashing.
ESMA last week published a stocktake on the current supervisory response to greenwashing, which found that NCAs are taking steps in the area but “still face constraints on their resources, as well as on their access to expertise and to good quality data”.
ESMA’s report notes that none of the NCAs surveyed had submitted greenwashing cases to law enforcement authorities.
This is in contrast to, for example, Australia’s financial regulator, which has clamped down on the issue. This month, the Federal Court of Australia found that Active Super had made “misleading” ESG claims in its marketing and investment material.
Australian watchdog ASIC initiated the case in August 2023, alleging that the super fund had exposed its members to investments it claimed to restrict or eliminate through “ESG misrepresentations” on its website, various social media pages and in disclosure documents.
Meanwhile, ESMA’s report says that two European NCAs said they had taken enforcement action for example by issuing orders while two other authorities said they are in the process of taking action.
In addition, nine regulators had requested that investment managers change their sustainability-related information. This included updating fund names, methodologies and investment processes.
Asked whether she believed actions taken in other jurisdictions had been premature, Ross said enforcement is “an important part of the overall supervisory toolkit, and I think it is important that it is used where it makes sense”.
“On the one hand you need to be conscious that you really send the right messages – you don’t want firms to abuse the system and clearly mislead investors, so you want to go after those,” she said.
“But at the same time, you need to also be conscious that you might not be in the perfect position at this point in time [to take enforcement action] – so it is a gradual process.”
Ross added that “maybe in the initial stages you do more through supervisory interaction” rather than “immediately bringing out the big stick of enforcement”.
Also speaking at RI Europe, Elizabeth Lance, assistant chief council at ICI Global, a US fund association, referred to Australia’s approach as “giving very clear signals to the market”. She said this is missing in Europe where “there is a lot of talk about greenwashing but not a lot of enforcement action to back that up”.
“[Australia] has a very principles-based system when it comes to sustainable finance disclosure, but they’ve backed that up with a series of supervisory and enforcement actions that give clear signals to the market on how to act.”
She added: “And what we have rather, in Europe is a lack of supervisory and enforcement signals going to the market. And then on top of that, we have the continual change in the regulation.”