French and Dutch securities regulators said on Tuesday that European Union rules are needed to prevent “greenwashing” or inaccurate claims that investments are sustainable and climate-friendly. Several firms provide ratings on a company’s environmental, social and governance (ESG) risks that asset managers use to make “green” investment decisions.
A joint statement from French regulator AMF and its Dutch counterpart AFM said, “While their influence is expected to grow considerably, providers of sustainability-related services remain largely unregulated.” “The proposed framework is aimed at preventing misallocation of investments, greenwashing, and ensuring investor protection,” the regulators said. The EU’s European Securities and Markets Authority should become the regulator for ESG ratings firms, they added. ESMA’s chair Steven Maijoor has said that supervision of ESG ratings was “far from optimal” due to the absence of clarity on the methodologies that underpin ratings. The EU is keen to expand “green” investments and any decision to propose rules to regulated ESG ratings would be up to its executive body, the European Commission.