Released on January 18 by the Securities and Markets Stakeholder Group (SMSG), the Advice to ESMA on the ESAs’ Call for Evidence on Greenwashing (closed since January 16) points out the issue related to ‘green-bleaching’, that is, the situation where manufacturers and distributors of financial products choose ‘not to claim ESG features of their products in order to avoid extra regulation and potential regulatory and legal risks’.

To tackle this issue, the SMSG stresses the importance of providing appropriate guidance to market participants.

Of note, the Advice contains recommendations to ESA:

• Provision of a clear definition of greenwashing that should also incorporate the notion of materiality

• Identification of potential gaps in the current regulatory framework prior to the introduction of new legislative requirements.

• Alignment between claims relating to ESG characteristics & objectives and/or ESG metrics and the true product characteristics. A distinction should also be made between misrepresentation and unintentional mistakes due to the current lack of raw data and incomplete regulatory frameworks.

• Consideration of the primary (green bond…) and the secondary and derivatives markets in the future ESG ecosystem.

• Improvement of the financial literacy of financial advisors to enable investors to have a better understanding of their sustainability preferences.