Guidance at the national level

The AFM has published a consultation document on new guidelines for sustainability claims (see: link). The guidelines aim to provide clarity on the use of sustainability claims by financial undertakings and pension administrators and underpins the position of the AFM that sustainability is a supervisory priority.

The draft guidelines define a sustainability claim as "any communication with regard to sustainability provided by market parties to promote the entity and describe or promote the products and services that offers”. The draft guidelines cover a wide range of sustainability claims, including claims about the environmental, social, and governance (ESG) characteristics of an investment product or service.

The guidance covers sustainability claims made voluntarily by market participants (non-mandatory information), or to claims as part of mandatory information, to the extent that the relevant specific regulations do not already prescribe the format of the claim. The guidance does not intend to introduce any new obligations. Rather, it aims to provide guidance on proper handling of the existing disclosure standards. 

The AFM notes that consumer research shows that sustainable investors rely heavily on non-mandatory information from providers, including marketing information and website texts, and often have different sustainability expectations of products than is actually the case. While the guidance refers to consumer research, we believe it is equally relevant for institutional promotion.

The draft guidelines set out a number of requirements for sustainability claims. These requirements include, in short form:

  • Claims must be correct, representative, and up-to-date.
  • Claims must be specific and based on reliable and verifiable information.
  • Claims must contain understandable, suitable and relevant information that is easy to locate and aligned.

The guidelines also set out a number of examples of sustainability claims that are likely to be misleading or deceptive, such as:

  • Claims that an investment product or service is "sustainable" or "green" without providing any supporting information.
  • Claims that an investment product or service has a positive impact on the environment, society or governance without providing any evidence to support such claims.
  • Using visuals that suggest more sustainable operations than actually is the case.

The publication of the guidelines is a positive development for the sustainable finance market in the Netherlands. It provides market parties with the AFM’s expectations when disclosing sustainability credentials of financial products and services.

The AFM is seeking feedback on the consultation document until 24 July 2023. The AFM will then consider the feedback and decide whether to publish a final guideline.

Guidance at the European level

The draft guidelines of the AFM are in part inspired by the Commission Notice on unfair business-to-consumer commercial practices dated 29 December 2021
(see: link) and the ESMA Supervisory Briefing on sustainability risks and disclosures in the area of investment management dated 31 May 2022 (see: link). 

A more recent publication at the European level is the Progress Report on Greenwashing, dated 31 May 2023 (see: link), which is the response of ESMA to the European Commission’s request for input on greenwashing risks and the supervision of sustainable finance policies. ESMA has been requested, together with EIOPA and EBA (the ESAs), to provide input.

First of all, the ESAs have formulated a common understanding of greenwashing, whereby greenwashing is understood as a practice where sustainability-related statements, declarations, actions, or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product, or financial services. This practice may be misleading to consumers, investors, or other market participants. The ESAs also agreed that sustainability-related misleading claims can occur and spread either intentionally or unintentionally and that greenwashing does not require investors being actually harmed. Furthermore, greenwashing can occur in relation to entities and products that are either under or outside the remit of the EU regulatory framework. 

In its report, ESMA further indicates for different industry players (issuers, investment managers, benchmark administrators, and investment service providers) the highest areas of greenwashing risks across four key dimensions. 

These four dimensions are: (i) the role that an actor of a given sector may play in greenwashing, namely trigger, spreader, or receiver of misleading sustainability claims; (ii) the topics on which sustainability claims are made; (iii) the characteristics which make them misleading, such as omission and cherry-picking; and (iv) the channels through which such claims are communicated, both for mandatory and non-mandatory information (such as  marketing material). 

In relation to MiFID II investment firms, ESMA for instance identifies that greenwashing risks predominantly occur on product level, such as shares, bonds, funds and derivatives sold to investors as well as services offered to investors. ESMA furthermore provides practical guidance by identifying underlying drivers of misleading sustainability claims and providing suggestions for remediation actions. The report provides useful insights for market participants in relation to sustainability claims made and practical tools to address issues raised. 

Building on this report, ESMA is expected to publish a final report in May 2024, which may include final recommendations, including on possible changes to the EU regulatory framework. 

Potential (class action) litigation risks

In March 2023, the European Commission published a proposal for a Green Claims Directive, which sets minimum requirements for sustainability claims and substantiation, verification and enforcement thereof. This directive as well as the guidelines of both the Dutch and European supervisors provide for further guidance on sustainability claims. Where some products and services are subject to specific regulations (including financial products), rules on unfair trading practices provide for a more general basis to take action against false or misleading claims on sustainability. Because of the upcoming EU and Dutch ESG related initiatives and responsibilities of in-scope companies, litigation is to be expected on these topics. We already see an increase of class action litigation on ESG-related topics, for example unfair trading practices and greenwashing, in Europe. 

Our firm is closely monitoring ESG-related developments and potential litigation enforcement risks in this respect. Please do not hesitate to contact any of us for more information.