ESG Focus

Author: Clerkin Lynch LLP

Date Published 11/07/2022

Regulatory Focus on Greenwashing

The increased focus on environmental concerns and related investments has given rise to concerns relating to the 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 European Securities and Markets Authority (“ESMA”) has clarified that combatting greenwashing is one of its key priorities. ESMA published its Sustainable Finance Roadmap 2022-2024 (Roadmap) on 11 February 2022. In this ESMA identified three priorities for its sustainable finance work:

  1. Tackling greenwashing and promoting transparency;
  2. Building National Competent Authorities’ (NCAs) and ESMA’s capacities in the sustainable finance field; and
  3.  Monitoring, assessing and analysing ESG markets and risks.

Separately, the Central Bank of Ireland (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. This Report notes that greenwashing will be one of its key areas of focus for 2022. The Central Bank notes that greenwashing 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 ?


Specific regulations have been introduced to address the risks arising from greenwashing. Specifically, the Sustainable Finance Disclosure Regulation (“SFDR”) and Taxonomy Regulation aim 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 significantly more detailed. Firms also have had to determine the classification of their fund products for the purposes of the SFDR (for example, “Article 8”, “Article 9” etc). These “Level II” standards were recently agreed by the European Commission as detailed in our separate article on this topic.