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Understanding greenwashing crucial to combat the risk, says EFAMA

EFAMA, greenwashingRegulators must not apply the term "greenwashing" too broadly in their efforts to identify offenders, a leading funds trade body said, due to unclear definitions surrounding sustainability at the regulatory level.

Responding to the European Supervisory Authorities’ recent consultation, the European Fund and Asset Management Association (Efama) said unclear definitions at the EU level on key sustainable finance concepts, as well as a "lack of complete, comparable and transparent ESG data", means all market actors are concerned about the risk of greenwashing.

Efama said greenwashing assessments should look for cases where product providers have knowingly misrepresented sustainability-related claims about practices or product features, and with an objective or intention to mislead or induce investors with sustainability claims.

However, Anyve Arakelijan, the regulatory policy adviser at Efama, said that due to the current regulatory uncertainty and ongoing evolution of the sustainability field, the term greenwashing should be carefully used and not used too broadly.

Efama stressed that the core attributes of greenwashing need to be "understood to address misleading practices, and thereby strengthen the integrity and effectiveness of EU capital markets".

There may still be greenwashing in cases of gross negligence even if there is no intention to mislead the buyer, said the trade body.

Arakelijan added that in order to keep investors’ confidence in sustainability, it is critical to understand what constitutes greenwashing and there must be a coordinated supervisory action to curb the risk. “Intentionally misleading behaviour relating to sustainable investments should not be tolerated, in the same way, that other misleading practices regarding risk or performance are not tolerated.”

Current regulatory gaps must be identified before proposing new legislation and guidance, as significant areas of financial supervision already address numerous greenwashing aspects, Efama's response included.

Efama also emphasised the need for an aligned and consistent approach when addressing greenwashing risks in the financial sector to reduce confusion and market fragmentation across Europe and globally.

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