This Thursday, the 20th, the European Commission updated the rules on sustainable financial products, such as ‘green’ funds or bonds, to avoid cases of ‘greenwashing’ in the European Union (EU), that is, false environmentally responsible packages.
“The European Commission today proposed a set of changes to the regulation on the disclosure of information on sustainable financing, the EU framework for the transparency of financial products that integrate environmental or social objectives”, says the institution in a statement.
Specifically, “the changes aim to address existing flaws, making the rules simpler, more efficient and better aligned with market reality”, with the aim of making the revised rules “more accessible to retail investors and easier to apply by companies”, he adds.
At stake are sustainable financial products such as ‘green’ investment funds that invest in renewable energy, ‘green’ bonds issued to finance environmental projects, impact funds that seek to generate measurable social or environmental impact and financial products that exclude harmful sectors such as tobacco or fossil fuels.
At a time when current regulations “generate excessively long and complex disclosures, making it difficult for investors to understand and compare the environmental or social characteristics of financial products” and when the labeling system “creates confusion especially among retail investors”, Brussels says it wants to clarify them.
This is because, currently, “there is a high risk of ‘greenwashing’ and improper sale of products”, he admits.
‘Greenwashing’ refers to products falsely said to be environmentally responsible to appear sustainable without actually being so.
The new rules make the system simpler and clearer by reducing reporting obligations, eliminating entity-level disclosures and simplifying product-level requirements.
They also envisage the creation of three transparent categories of sustainable financial products – “Sustainable”, “Transition” and “Basic ESG” – in order to ensure that 70% of the portfolio follows the chosen strategy and excludes harmful activities.
These measures aim to combat ‘greenwashing’, lower costs for companies and make information more useful and accessible for investors, especially retail investors.
This regulation was adopted in November 2019 and has been in application since March 2021, having been supplemented in 2022 and 2023.
The European Commission’s proposal will now be submitted to Parliament and the Council for deliberation.