Introduction
Since the inception of the Green Bond Principles in 2014, ICMA and its members have been actively involved in advancing best practices in sustainable finance. In addition to contributing to the development of global standards for sustainable bonds and debt capital market products, ICMA has taken on the responsibility of engaging in discussions about greenwashing and market integrity.
You can access the ICMA comprehensive analysis in the report “Market Integrity and Greenwashing Risks in Sustainable Finance.”
Earlier this year, the ICMA requested a “Call for Evidence on greenwashing” by the European Supervisory Authorities (ESAs), this publication delves deeper into global greenwashing concerns. It incorporates references to external and in-house research and presents five key recommendations for policymakers and regulators.
According to ICMA, the objective with this paper is to encourage a constructive dialogue among the market, civil society, and regulators to address greenwashing risks while avoiding both market complacency and regulatory overreach.
The association has identified core areas of concern related to greenwashing and has paired them with actionable regulatory or market solutions, many of which are already in progress.
Summary
This report by ICMA addresses greenwashing risks in sustainable finance, proposing a focused definition and highlighting regulatory adequacy. It finds greenwashing less prevalent in the green bond market but identifies concerns in the sustainable fund industry. The report emphasizes unpacking greenwashing into specific areas of concern and discusses how global standards and regulations are mitigating these issues while highlighting the importance of usability and international operability.
- Focused Definition Needed: Exhaustive greenwashing definitions may cause market paralysis or regression due to excessive reputational or litigation concerns. We propose a more focused definition for financial regulatory purposes.
- Regulatory Adequacy: Existing laws and regulations appear capable of addressing serious misrepresentations in sustainable finance, as demonstrated by regulators.
- Greenwashing Prevalence: Analysis of data and studies suggests that greenwashing is not widespread in the green bond market, but early sustainability-linked bond development may have lacked ambition and materiality.
- Positive Trend: Recent market feedback and research, based on reported controversies and alignment with the Science-Based Targets initiative (SBTi), indicate a positive trend in the sustainability-linked bond market.
- Sustainable Fund Concerns: Concerns exist in the sustainable fund industry, including issues related to investment methodologies and fund naming.
- Unpacking Greenwashing: We propose unpacking greenwashing into specific areas of concern rather than expanding current definitions.
- Areas of Concern for Sustainable Bonds: These include a lack of ambition, strategic inconsistency, mismanagement of wider sustainability risks, and actual deception.
- Areas of Concern for Sustainable Funds: Vague or ambiguous responsible investment methodologies, unclear or misleading fund labeling and naming, and actual deception.
- Mitigation Through Global Standards: The de facto global standard represented by the Principles is actively mitigating concerns in the sustainable bond market.
- Relevance of Regulations: Existing or pending sustainable finance regulations in many jurisdictions address key aspects, such as taxonomies, corporate sustainable reporting, and Do No Significant Harm (DNSH) methodologies.
- International Operability: Ensuring usability and international operability of these regulations is crucial.
- Sustainable Fund Market: Market best practices have not led to international agreement on industry standards, but regulatory initiatives, such as disclosures for investment methodologies and fund naming, are in progress.
- Challenges Ahead: Implementation and usability challenges for regulators need addressing with market input.
- Appendices: Summarize areas of concern with examples and mitigants, along with an international overview of official definitions and references to greenwashing.
Source: ICMA
