Will Defining Greenwashing Actually Stop It? The EU Hopes So.

What is greenwashing? A new effort in the EU aims to promote tangible climate action by defining “greenwashing” in order to enforce penalties on corporations inflating their sustainability credentials.

The European Securities and Markets Authority (ESMA) says the clock is ticking in the fight against climate change and necessary steps must be taken to address it. The watchdog says it’s now working on a legal definition for “greenwashing”—the term that’s used to describe marketing and PR spins to make efforts appear more environmentally friendly than they actually are.

“[T]here is now a real need to address greenwashing without delay, even if all the legislative stepping stones are not fully in place yet,” ESMA said in its recent sustainable roadmap.

According to the ESMA, trillions of euros are being routed into funds that promote climate friendly or sustainable practices. But the agency says none of these investments are being vetted for over-inflation of credentials. It says defining what constitutes greenwashing will help to quash it.

The ESMA says it will work to determine how greenwashing differs from other types of marketing spins on financial products, as well as how it can promote transparency.

“Ensuring the consistent and effective application of the EU sustainable finance rulebook is key to preventing greenwashing,” ESMA said.

Renewable energy

The news follows a recent announcement by the EU to include natural gas and nuclear energy as part of its renewable energy plans—a move that earned the governing body backlash. According to the plan announced last week, some natural gas and nuclear power projects would be classified as green investments.

“Nuclear power is neither ‘green’ nor sustainable,” Austrian Chancellor Karl Nehammer wrote Wednesday on Twitter. “I cannot understand the decision of the EU.”

The EU says it’s creating a new list of ESG disclosure requirements for what can be considered sustainable investments. This “EU taxonomy”, which is tasked with defining sustainable investments for its climate goals, classified both gas and nuclear as “transitional activities,” according to the Washington Post.

“The inclusion of gas was backed by several member states that said gas is needed as a ‘bridge,’ as countries wean themselves off fossil fuels and build up their renewables capacity,” the Post explained. “France and others pushed for the inclusion of nuclear energy — despite strong opposition from Germany.”

EU member countries Austria and Luxembourg says they will sue the commission over what Austrian climate minister Leonore Gewessler called a “cloak and dagger operation.”

Greenpeace also had words for the bloc’s proposal, calling it “anti-science” and a move that “represents the biggest greenwashing exercise of all time.”

In an open letter from a group of investors that include BlackRock and Vanguard, Stephanie Pfeifer, the group’s CEO wrote last month that any inclusion of gas within the Taxonomy would “undermine the EU’s ambitions to set the international benchmark for credible, science-based standards for classifying sustainable economic activities.”

“It is our view that the proposals in the draft Complementary Delegated Act would seriously compromise Europe’s status as a global leader in sustainable finance, potentially triggering a ‘race to the bottom’ which could dilute the level of climate ambition within emerging jurisdictional taxonomies.”

Supply chain changes

The plan also comes as a report from Barclays, released yesterday, found 20 percent of U.K. retailers had severed ties with supplier contracts to the tune of $10 billion last year over the lack of transparency about sustainability efforts or ethical concerns.

“We are seeing a marked acceleration and shift among retailers towards prioritising sustainable and ethical standards in every part of their business operations,” Karen Johnson, Head of Retail and Wholesale, Barclays Corporate Banking, said in a statement accompanying the report. “That is now starting to take its toll on retail suppliers with billions of pounds worth of contracts being cancelled every year.”

It also comes as EcoVadis, a platform that works to help companies across industries improve sustainability metrics , found significant increases across key areas including recycling, renewable energy, as well as in social areas including diversity training and equality programs.

“Businesses and governments are feeling immense pressure to break down broad commitments into tactical targets and action plans—particularly in the value chain—and start executing and reporting on them,” Pierre-François Thaler, co-founder and co-CEO of EcoVadis, said in a statement.

“Our customers across the network have done tremendous work to achieve these results.”