EBI: Different Shades of Green - An Analysis of the EU Issuers' Disclosure Regulation and its Effectiveness on Limiting 'Greenwashing'

• The EBI paper examines the effectiveness of EU regulations on issuers' disclosures in curbing greenwashing. Greenwashing, broadly defined by the European Supervisory Authorities (ESAs), refers to misleading sustainability-related claims that do not reflect the true sustainability profile of entities or products.
• EU Regulatory Framework: the EU has developed a comprehensive legal framework to combat greenwashing, including:

European Climate Law (ECL): establishes a framework for achieving climate neutrality.

Taxonomy Regulation: provides criteria for determining whether economic activities are environmentally sustainable.

Corporate Sustainability Reporting Directive (CSRD): mandates sustainability reporting for large companies.

Corporate Sustainability Due Diligence Directive (CSDDD): extends due diligence obligations to the entire value chain.

CRD6/CRR3: imposes prudential requirements on banks, including the management of ESG risks.

Effectiveness of the Framework: the paper evaluates the effectiveness of these regulations through several lenses:

Literature Review: Discusses the economic consequences of greenwashing and the role of market mechanisms in identifying and penalizing greenwashing behaviors.

Litigation Cases: Analyzes key cases of alleged greenwashing to highlight regulatory gaps and enforcement challenges.

Assessment of Reporting Requirements: Reviews the EU sustainability reporting standards and their implementation, identifying areas where improvements are needed.

• Findings and Recommendations

Effectiveness: The current EU framework, particularly the CSRD and CSDDD, has made significant strides in increasing transparency and accountability. However, inconsistencies in definitions and methodologies for sustainability metrics can hinder comparability and reliability.

Enforcement: Effective supervision and enforcement are crucial. The paper recommends harmonizing penalties across member states and strengthening the role of supervisory authorities.

Future Directions: Calls for better alignment of transition plans with scientific benchmarks, comprehensive coverage of financed and facilitated emissions, and improved coordination among regulatory bodies.

Original source: Different shades of green: An analysis of the EU issuers' disclosure regulation and its effectiveness on limiting "greenwashing" by Maria Nieto, Chryssa Papathanassiou :: SSRN