No explicit legal framework: Austria does not yet have explicit statutory rules addressing/sanctioning greenwashing, neither as a whole nor in the financial sector. However, greenwashing is indirectly addressed in connection with rules on unfair commercial practices and on misleading customers under general civil law (challenges of contracts for error, damage claims). Further general rules apply to non-financial reporting (see below), consumer protection statutes (see below) and green financing.

Financial Ordinary Law: Under financial ordinary law, the general duties of care of the managers of e.g. a credit institution include the exercise of the due care and diligence of a prudent and conscientious manager within the meaning of stock corporation law. This includes setting up and maintaining an appropriate risk management system. General rules list the various types of risks that should be taken into consideration. Similar rules exist for payment institutes, insurance companies, pension funds, investment companies and alternative investment funds. The Austrian regulator (FMA) in its “Guidelines to Dealing with Sustainability Risks” (issued July 2020) determined sustainability risks to be part of the general types of risks. FMA gives examples of how the realization of physical, environmental-related risks can translate to risk categories of the respective supervised entities, e.g.: (i) Environmental catastrophes can lead to increased demand for emergency loans, resulting in stranded assets no longer being tradable (liquidity risk) or (ii) increased climate litigation can lead to stigmatization of banks by consumers if they distribute only supposedly sustainable financial products (legal and reputational risk). In connection with credit institutions, risk management should then make sustainability key performance indicators (e.g. energy label of building portfolio) one further basis in the lending decision process for mortgage loans.

On 2 August 2022, an EU Commission implementing legislation initiative entered into force targeting taking into account sustainability risk for investment decisions, organization (management duties) and risk management by financial market participants such as UCITS or AIF managers, investment firms acting as asset managers, investment advisers and pension fund managers. The violations of these management and organizational duties will be prevented by supervisory measures and administrative penalties, allegedly in addition to potential liability claims based on violation of corporate governance rules and general diligence duties. Further, pursuant to Art. 449a CRR (Capital Requirements Regulation), large (credit) institutions listed on an EEA-regulated market, shall from 28 June 2022 annually disclose information on ESG risks. This will, pursuant to the draft ITS prepared by EBA, include the publication of the Green Asset Ratio (“GAR”) which will be based on assets invested in corporations subject to reporting requirements under the NFRD (as defined below), assets (loans) towards financial entities and assets relating to real estate financings of households and local governments, whereas assets towards corporations without NFRD reporting requirements will be taken into account in the Banking Book Taxonomy Alignment Ratio (“BTAR”).

Non-financial reporting: In line with the Non-financial Reporting Directive 2014/95/EU (“NFRD”) amending Directive 2013/34/EU on the annual financial and the consolidated financial statements (Bilanzrichtlinie)) as regards the disclosure of non-financial and diversity information by certain large undertakings and groups, the Austrian state has transposed said Directive already in 2017 by adopting the Sustainability and Diversity Improvement Act (Nachhaltigkeits- und Diversitätsverbesserungsgesetz), which amended the Austrian company code (Unternehmensgesetzbuch, which contains rules on the preparation of the annual statements), the Stock Corporation Act and the Act on Companies with Limited Liability. In line with said Directive, Austrian law declares companies listed on a regulated market, credit institutions, and insurance undertakings as public-interest entities (PIE); in addition, Stock Exchange operating entities (Börseunternehmen) were designated as public-interest entities. As a consequence, such PIEs, if they exceed certain size thresholds, are required to include a non-financial statement in the management report (Lagebericht) of their annual financial statements, including environmental, social and employee issues, respect for human rights and the fight against corruption and bribery. The analysis has to explain the non-financial performance indicators by reference to the amounts and disclosures reported in the financial statements. Some Austrian authors hold that missing to provide or giving wrong/misleading non-financial statements should be enforced with/sanctioned by the rules of criminal balance sheet law (Bilanzstafrecht). Damage claims (“client litigation”) are thinkable as well. The revised NFRD will amend these rules in line with the EU standards for non-financial reporting duties in the future.

Green Financing Rules: No explicit/statutory national rules exist on green financing. Austrian corporate lenders’/issuers’ behavior is significantly investor-driven. Austrian corporate borrowers or issuers, if their business or industry is capable of meeting the respective criteria, almost entirely take up financings by way of money market instruments (such as promissory loan notes (Schuldscheindarlehen) or green loans) as well as via capital market instruments (green bonds). In doing so, they adhere to the relevant Green/Sustainability (linked) principles issued by the various agencies (ICMA, LMA, etc.); i.e., none of these green instrument borrowers/issuers have awaited the implementation of the EU Green Bond Standards. Sustainability links in market practice usually provide fee coupon-step up of a maximum 0.5% and only once if the respective criteria are not met. Austrian writers assume that in line with Austrian case law a violation of these self-binding promises of the borrowers/issuers could lead to termination rights by the lender/investor and could also lead to damage claims raised by such lenders/investors. 

The statutory mentioning of greenwashing: Austrian statutory federal law, however without legally binding effect towards potential plaintiffs, once explicitly mentions greenwashing as legal term: In connection with the federal budget for calendar year 2023, “Global budget 21.01 Control and Services” sets aside funds for “measures including equality measures”; one of these measures (3WZ4) for strengthening of the consumers for the ecological change explicitly refers to Proposal COM 2022 (143) and explains the budgetary position that in terms of content, increased information about durability and repair as well as unverifiable environmental claims (“greenwashing”) are to be covered.

Greenwashing as misleading behavior: Despite the fact that the Commission’s proposal COM 2022 (143) fin to amend the blacklist of the Unfair Commercial Practices Directive 2005/29/EC by including explicit greenwashing elements has not been realized yet.

Austrian courts already now consider greenwashing as a violation of the general prohibition of misleading statements and the Unfair Trade Act ("UWG") competition and the number of green claims raised to seek damages has recently increased significantly.

Further, general civil law principles prohibiting misleading customers may be applied by Austria's civil and commercial courts. Nevertheless, the newly proposed blacklist items (as well as the existing items) primarily target consumer goods and services and not so much the financial sector (although generally applicable).

Regarding financial sector entities PIEs and the corresponding non-financial reporting duties see above (these rules also apply to non-financial companies listed on a regulated exchange if they exceed the size thresholds.

In addition, general rules (such as those under general civil law and the Unfair Trade Act, see above) apply to the financial sectors not differently than to other sectors.

Regarding special rules for the GAR and the BTAR for large credit institutions, see above.

There is no explicit definition of greenwashing in Austrian legislation; wherever relevant, the legislator takes the “greenwashing” understanding of EU lawmaking as a given (e.g. in connection with the federal budget, see above).

Austria lacks a legal framework for sanctioning greenwashing as a whole and in the financial sector. Unfair communication and distribution can hence, by way of private enforcement, only be addressed under the rules on unfair commercial practices, on misleading customers under general civil law (damage claims, challenges of contracts for error) and under general consumer protection law clauses. This results in avoidable legal uncertainty.

Violations of the Taxonomy Regulation, of the Sustainable Finance Disclosure Regulation and of MiFID II implementing legislation (on product governance, organizational duties, risk management and sustainability preferences in investment services and portfolio management services) are currently supervised and enforced by the Austrian FMA. The pertaining rules are complex, severe and limited to investment banking issues only. This triggers avoidable legal uncertainty as to whether these rules will be by courts and market participants extended to non-investment banking issues by way of interpretation.

Another challenge is to bridge the gap between the rules included in Art. 2 No. 7 Delegated MiFID II Regulation 2017/565 on sustainability preferences by clients asking for investment advice or portfolio management and the different product categorization included in the SFDR and Taxonomy Regulation. At the moment, this results in investment advisory services becoming offered to customers in a way that customers often decide to expressly not voice any sustainability preferences at all, which is a meaningless result.

It might be considered to have all EU law provisions addressing greenwashing in the financial sector collected and made available by publishing extensive joint EBA/ESMA/EIOPA guidelines similar to those published by the U.S. Federal Trade Commission. (FTC Guidelines)

N/A