Disclosure

In 2023, EIOPA has published several recommandations and progress reports, the most insightful being:

• Advice to the European Commission on Greenwashing – EIOPA-BoS-23/157 – 01 June 2023
• Consultation Paper on the Opinion on sustainability claims and greenwashing in the insurance and pensions sectors – EIOPA-BoS-23/450 – 17 November 2023

Both documents contain highly important information and guidelines towards a future framework for the industry, a framework probably to be applicable no later than 2025.

As outlined in both papers, EIOPA addresses these guidelines in close cooperation with the two other ESA in charge of financial services supervision, EBA and ESMA. It’s advice summarizes this interconnectedness with a « Sustainable Finance Investment Value Chain » chart:

The Advice to the EC defines the meaning of « Sustainibility Claims« , the critical item to be addressed to analyse any kind of greenwashing activity within this value chain.

‘Sustainability claims’ are claims that state or imply that an entity or product ‘benefits’ the environment or society. The type of ‘benefit’ is varied and includes:

• positively impacting sustainability factors;
• not impacting sustainability factors;
• minimizing negative impacts on sustainability factors;
• minimizing the impact of climate change on society (this includes climate adaptation measures).

This understanding of ‘sustainability claims’ is consistent with the definition of “environmental claims” as defined in the EC proposed Directive as regards empowering consumers for the green transition which would amend the Unfair Commercial Practices Directive (UCPD): “‘environmental claim’ means any message or representation […], which states or implies that a product or trader has a positive or no impact on the environment or is less damaging to the environment than other products or traders, respectively, or has improved their impact over time”. ‘Sustainability claims’ as understood by EIOPA extends it to also cover social aspects.

Misleading sustainability claims can deceive consumers into buying products that are not aligned with their preferences, or into buying products from a pension or insurance provider that misleadingly portrays itself an entity with sustainability credentials. In such cases, consumers’ investments or premiums are re-routed away from sustainability factors.

Further, greenwashing occurrences erode consumers’ trust in providers’ ability to positively impact environmental or social factors. While EIOPA has not identified to date any major greenwashing cases in the insurance and pension sectors, because cases emerged in other sectors there may be already a general mistrust from consumers in relation to sustainability claims which can be made by providers. The EU-wide Eurobarometer survey carried out by EIOPA in June 2022 shows that 62% of EU consumers do not trust the sustainability claims made by insurance undertakings or distributors, while a similar percentage (63%) says that sustainability claims about insurance products are often misleading. Consumer representatives in their response to the ESA Joint CfE in January 2023 also reported limited trust in insurers and pension providers sustainability claims.

Additionally, misleading sustainability claims do not allow consumers as well as broader society to hold providers accountable for their environmental and social impact. This unaccountability might embolden providers to make misleading sustainability claims to gain a competitive advantage over other providers, after which these other providers might follow suit to close the competitive advantage, leading to more greenwashing occurrences.

Where and How Greenwashing Occurs in the Insurance and Pension Sectors

EIOPA differentiates seven major fields (three specific stages for insurers, three for IORPs and one common stage for both types of organizations) within the insurance and pensions lifecycle chart:

The major difference among insurers and IORPs are the reference to « products » and « schemes », taking into account the still highly heterogenous pension market and pension scheme providers within the EU.

In relation to the stages of the insurance and pensions lifecycle, respondents to the ESA Joint CfE provided views on the likelihood of the occurrence of greenwashing:

Declared likelihood shows that Marketing and Sales a clearly fingerpointed as they are considered « highly likely » to be subject to greenwashing. Without neglecting the other stages and especially the entity model and management clearly in the drivers’ seat of the other stages’ behaviour, let’s focus on the product delivery issues:

• Marketing: main fields of potential greenwashing have their origins in the risks related to terminology and non-textual imagery.
• Sales: information asymmetry or misleading information/disclosure as well as risks related to unsuitable product due to poor advice, incentives and distributors’ training are cited as potentially important and critical

Tackling Greenwashing

EIOPA regularly conducts surveys with the NCA to evaluate maturity and action plans as long as the framework is not in place.

Results are for the time being relatively mitigated as the large majority of NCA (21) didn’t identify greenwashing issues yet due to missing criteria to be applied and inexisting client related investigations. However, NCA reporting first actions are using several techniques EIOPA will probably evaluate and adopt for the future framework:

Very interesting also the survey results on the potential use of Suptech to deal with the enormous need to analyze data on products, sales and marketing practices:

Next Steps

Based on additional analyses, discussions and evidence that emerges by the delivery of the final report (May 2024), EIOPA will further refine its view on the definition of greenwashing, its impacts and risks (particularly on potential financial stability risk implications), as well as on how greenwashing can occur in the insurance and pensions lifecycle. To further exemplify the latter, EIOPA might develop case studies showing how greenwashing can emerge in practice.

EIOPA will also provide further considerations on the supervision of greenwashing, particularly in relation to any new greenwashing-related supervisory experiences and practices, as well as in relation to greenwashing-related supervisory and enforcement measures, if any.

Finally, EIOPA will further develop the list of issues it has already identified in the regulatory framework and based on those issues it will propose improvements – by way of recommendations – to the regulatory framework relevant to the insurance and pension sectors, including to Level 1 legislation. However as requested by the CfA, EIOPA will not make any proposals that would imply modifications of the Corporate Sustainability Reporting Directive (CSRD).