EU Tightens Rules On Greenwashing

Joe Biden’s election as US president will strengthen the trend for ‘Responsible Investing’. Unlike his predecessor, Biden is sympathetic to green economy aspirations, and his policies will push more US capital in that direction. America has catching up to do on the European Union, where climate change and lowering carbon emissions has been top of the agenda for years.

The European Commission wants to channel private investment to help transition the EU to a climate-neutral economy. It’s doing so by compelling investment managers to make private capital available, firstly be ensuring

that investment products sold with a green label live up to their promise. Demand for ‘sustainable funds’ has been increasing rapidly, as evidenced by inflows into ESG-related exchange traded funds growing last year by a factor of three.

The EU’s Sustainable Disclosure Regulation is multi-faceted and came into force on March 10 in relation to ESG funds. According to law firm Maples, such funds now have to comply with more granular requirements than other types of financial products, the main objective being to mitigate ‘greenwashing’ and ensure that the ‘green’ or ‘ESG’ labelling is not just a marketing exercise but is actually reflected in investment decision-making.

For instance, where a financial product has an objective of reducing carbon emissions, the information disclosed must include the objective of low carbon emission exposure in view of achieving the long-term global warming objectives of the Paris Agreement.

For products promoting environmental or social characteristics, fund managers and financial advisers are required to advise clients what these characteristics are, and provide information on the methodologies used to measure and monitor these characteristics, including data sources, screening criteria and relevant sustainability indicators.