Central Bank Focus on “Greenwashing”

Author: Clerkin Lynch LLP

Date Published 16/03/2022

Central Bank Focus on “Greenwashing”

The Central Bank of Ireland (the “Central Bank”) has made it clear that one of its key areas of focus for 2022 will be any mismarketing of financial products by claiming they have sustainable credentials where in reality they do not meet such criteria – a practice known as “greenwashing”. The Central Bank notes that this can consist of inadequate as well as incorrect disclosures so care needs to be taken to ensure that related materials are comprehensive and complete. For example- are “end of life” considerations relating to underlying products also considered when assessing their sustainability?


The European Commission has introduced specific regulation to address the risks arising from greenwashing. Specifically, the Sustainable Finance Disclosure Regulation (“SFDR”) aims to harmonise the rules across the European Union (“EU”) on how financial market participants describe sustainability factors and risks in their investment process and how they make provision for sustainability related information for financial products, including funds. The aim of this is to ensure investors can be fully informed of financial products’ sustainability characteristics in a measurable and quantifiable manner, using consistent and transparent parameters. This is viewed as being vital to building trust in related financial products to assist a transition to a carbon neutral economy.

This forms part of the European Commission’s Action Plan on Sustainable Finance, 2018, and more recently, its Renewed Strategy for Sustainable Economy, 2021 and is a new regulatory framework for sustainable finance.

Fund documentation will already have been updated to address SFDR Level 1 requirements that applied from March 2021 (as well as potential further updates to reflect the Taxonomy Regulation which were effective with a 1 January 2022 deadline). These requirements will be further supplemented with Level 2 obligations, applying from January 2023 that are more detailed. Firms will also have had to determine the classification of their fund products for the purposes of the SFDR (for example, “Article 8”, “Article 9” etc).

Central Bank Actions to Date

The Central Bank published its second annual “Securities Markets Risk Outlook Report” (the “Report”) in February 2022. This is designed to inform stakeholders of the key risks perceived by, and areas of focus for, the relevant section of the Central Bank, the Securities and Markets Supervisory Directorate (“SMSD”), in 2022. It also seeks to assist regulated entities by setting out its expectations regarding their responsibilities regarding mitigating and managing relevant risks. This Report notes that greenwashing will be one of its areas of focus in 2022.

The Central Bank Report cited above is just the latest in a series of related steps it has taken. For example, the Central Bank established a new Climate Change Unit in 2021. The purposes of this were to drive forward climate-related work, to ensure cohesion and consistency of approach across business areas, and to further embed climate risk and sustainability considerations into the Central Bank’s ongoing work.
Furthermore, the Governor of the Central Bank wrote to regulated financial service providers in November 2021 to highlight firms’ statutory obligations related to climate and sustainability issues as well as the Central Bank’s related supervisory expectations. The fundamental message is that with sustainable finance becoming part of the mainstream investment process, firms need to be cognisant of their related legal responsibilities to ensure investor interests and market integrity are protected. The Central Bank also introduced fast track filing and approval processes to facilitate the timely updating of fund documentation in advance of the relevant deadlines.

How Clerkin Lynch Can Help

ESG is an area of keen focus for Clerkin Lynch. Six members of our team undertook the “Climate Change Law” certificate course with the Law Society of Ireland in 2021 to facilitate our comprehension of related issues and we have prepared a series of materials on ESG related topics. Our genuine interest in the topic and sustainability related outcomes generally means that we are ideally positioned to assist clients in addressing related concerns.