Greenwashing in EU's legislative is not neccessary

Businesses don’t like the EU’s proposal for the legal definition of greenwashing

Fund industry associations have advised the European Union’s markets watchdog that it should not define greenwashing in legislation due to worries that doing so would complicate a sector that is “in constant movement.”
Investments claiming to be climate-friendly have received billions of dollars, but there haven’t been many penalties for greenwashing or overstating one’s environmental credentials.

Punishing greenwashing will be easier if legally defined

The practice of businesses making false or deceptive claims regarding the environmental advantages of their goods or services is known as “greenwashing.” This can take the form of exaggerating the recyclability of a product. Also, it is making claims about the use of renewable energy in production that are not true. Using vague or undefined terms such as “natural” or “eco-friendly” without providing any evidence to back up those claims is also greenwashing.

The goal of this practice is often appealing to environmentally conscious consumers. But it can also mislead consumers about the actual environmental impact of a product or service.

Although the phrase is frequently used more generally to characterize deliberate or careless activities involving other environmental, social, and governance (ESG)-related issues, regulators claim that punishing greenwashing should be easier with a legal definition.

What’s the business community’s opinion

The European Securities and Markets Authority (ESMA) and the EU’s insurance and banking watchdogs have asked the business community for opinions on how to define greenwashing legally.

The opinion of the Investment Company Institute (ICI) is that it may be deceptive at the business, product, or service level, whether intentionally or inadvertently. ICI is a U.S.-based organization that advocates for investment funds, sustainability-related claims, deeds, omissions, and communications.

According to ICI, rather than attempting to define “greenwashing” and so coining a new legal word, EU authorities should outline the behavior or circumstances that are of concern. In short, it would be ineffective to try to adopt a broad definition of this practice or include it in legislation.

EU overuses the term greenwashing

According to the European Fund and Asset Management Association (EFAMA), the EU should use already-existing instruments and regulations combating greenwashing. It is a better solution than adding complexity by enacting new definitions that have no connection to existing regulations.

EFAMA also raised the issue of the industry’s reliance on external data that asset managers had no control over. Such is data from businesses and ESG rating agencies.

Anyve Arakelijan, Regulatory Policy Adviser at EFAMA, cautioned against overusing the term greenwashing in light of the current level of regulatory uncertainty and ongoing evolution.

The U.S. fines greenwashing

It is essential to have a deeper grasp of what constitutes this practice and to implement unified supervisory action to mitigate this danger.

However, they are increasingly exercising their current authority and proposing new regulations in areas like disclosure, despite the fact that key regulators have so far resisted defining “greenwashing” in law.

For instance, the financial watchdog in Britain stated in October that it intended to implement a rule prohibiting greenwashing by all businesses. Several businesses, notably BNY Mellon, have received fines for deceiving investors in the US.