Greenwashing in the EU Financial Sector |
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Belgium |
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(Europe)
Firm
Liedekerke
Contributors
Freya Mareels |
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| Does your jurisdiction have an explicit legal framework to identify, address and sanction greenwashing in the financial sector? If yes, is it enacted in a specialized law or addressed by other regulations (advertising law, consumer protection law,... | Belgium does not have an explicit legal framework to identify, address and sanction greenwashing in the financial sector. However, various specific financial legislations may be applicable to greenwashing. Prospectus Law: A plaintiff may base a claim on art. 26, §2 of the Law of 11 July 2018 on public offers of investment instruments and the admission to trading of investment instruments on regulated markets ("Prospectus Law") if, in the context of a public offering, a prospectus were to contain misleading information. Under art. 26, §2 Prospectus Law, the persons responsible for the prospectus will be jointly and severally liable vis-à-vis the investor to make good the damage caused by the misleading or the incomplete nature of the information in the prospectus. The disadvantage caused to the investor is, subject to proof to the contrary, deemed to result from the omission or the misleading or inaccurate character of the information in the prospectus, if the lack of this information or the misleading or incorrect character, is of such a nature that a positive climate could be created on the market or the purchase price of the investment instruments could be positively influenced. In order to benefit from the rebuttal of proof in art. 26, §2 Prospectus Law, a potential plaintiff thus will need to prove not only that the prospectus contained misleading information or omitted relevant information – as an apparent consequence of greenwashing – but also the fact that this may have created a positive market sentiment or otherwise positively influenced the purchase price of the investment instruments. A second potential legal basis is art. 26, §5 Prospectus Law. This would envisage the situation where the information in the prospectus itself is complete and correct but is contradicted by other, misleading greenwashing information in marketing materials. In short, the issuer of investment instruments (as well as the offeror, or the intermediaries appointed by it) will be liable for the disadvantage caused by any misleading, incorrect or inconsistent information with regard to the prospectus that is contained in the relevant market materials. Unless there is evidence to the contrary, the disadvantage to the investor will be deemed to have resulted from the misleading, inaccurate or inconsistent nature of such information, if it could create a positive market climate or if it could positively influence the purchase price of the investment instruments. Fund regulations: Similar (though not identical) provisions exist in art. 63 of the Law of 3 August 2012 on undertakings for collective investment meeting the conditions of Directive 2009/65/EC and undertakings for investment in receivables ("UCITS Law") and art. 228 of the Law of 19 April 2014 on alternative collective investment undertakings and their managers ("AIFM Law"). MiFID II: With respect to investment services under MiFID2, art. 27bis, §1 of the Law of 2 August 2002 on the supervision of the financial sector and financial services ("Law of 2 August 2002") provides another route for the potential legal challenge: when a credit institution or MiFID firm is offering or providing financial products or services, all information provided by such company to its clients or potential clients, including advertising communications, must be correct, clear and not misleading. This can be read together with art. 30ter of the Law of 2 August 2002: if a plaintiff can prove that due to greenwashing, a publicity is incorrect or misleading, and if the client can prove that it suffers damage as a result of the related financial transaction, the transaction concerned is deemed to be the result of the greenwashing, except evidence to the contrary. Insurance: Finally, greenwashing by insurers or insurance distributors may result in liability under art. 279, §1 of the Law of 4 April 2014 on insurances ("Insurance Law") which requires all information provided by insurance distributors to their clients or potential clients related to insurance, including advertising statements, to be correct, clear and not misleading. Consumer Law: Art. VI.97 of the Code of Economic Law ("CEL"): Greenwashing can be considered a misleading commercial practice under art. VI.97 CEL. Under art. VI.97 CEL, a commercial practice shall be regarded as misleading if it is accompanied by false information and is therefore based on untruths or, even if the information is factually correct, deceives or is likely to deceive the average consumer in any way (including through its general presentation) in respect of the main characteristics of the product, and in either case causes or is likely to cause the average consumer to take a transactional decision that such consumer would not have taken otherwise. Art. VI.99 CEL: As greenwashing will regularly involve the omission of material information, art. VI.99, §2 CEL may come into play. A misleading omission includes a commercial practice that (1) hides essential information necessary to make an informed transactional decision, (2) provides it in an unclear, incomprehensible, ambiguous or late manner, or (3) if it is not already apparent from the context, does not make it apparent; and in either case causes or is likely to cause the average consumer to take a transactional decision that such consumer would not have taken otherwise. Art. VI.100 CEL: To the extent that the greenwashing pertains to misleading claims on (sustainable finance) labels, it can also be considered unfair in all circumstances under art. VI.100, 2° CEL. Claims on adhering to codes of conduct when this is not the case would similarly be deemed unfair in all circumstances under art. VI.100, 1° CEL. |
| Is the relevant legal framework based on the EU or on the national legislation? | The requirements stemming from financial law mainly derive from European legislation (in particular from Directive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers, Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities, Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC, Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU and Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution). Nonetheless, guidelines, communications and positions published by the national regulators, the Financial Services and Markets Authority ("FSMA") and the National Bank of Belgium ("NBB") can be based on both works from the EU regulators as consultations and research, and work carried out on a national level. Noteworthy are the Guidelines on environmental claims, published by the Belgian Federal Ministry of Economy on 14 June 2022 ("SPF Economy Guidelines") and the FSMA's guidance on sustainable finance, and more specifically on the implementation of Regulation (EU) 2019/2088 on sustainability‐related disclosures in the financial services sector. Both are explained in more detail in the sections below. |
| Is greenwashing, which may occur in the financial sector, addressed specifically and/or any differently from greenwashing in other sectors? | The SPF Economy Guidelines aim to raise companies' awareness and help them check whether environmental claims they make are relevant. It sets out the main principles of greenwashing and identifies good practices to avoid misleading claims while also clarifying regulations based on concrete situations. Aside from that, greenwashing is addressed through sectoral and general provisions as well as guidelines from the regulators. In any sector, greenwashing may potentially fall within the scope of the provisions of Book VI of the CEL as discussed above in section 1. These are the only general and transversal prohibitions that apply today, across all sectors, including the financial sector. In its 2022 presentation "20 Projects for the Future", the FSMA declared its intention to screen investment funds on potential greenwashing via data analysis. Moreover, in its Communication FSMA_2021_06 on the entry into force of SFDR, the FSMA clarified the SFDR rules applicable to financial institutions from a product- and entity-level and the FSMA's expectations in this respect in order to avoid any risk of greenwashing. The FSMA states, among other things, that the use of the term "sustainable investment" is reserved for Art. 9 Products, that other UCITS and AIFs should avoid the word "sustainable" in their publicity as much as possible and, if this would not be possible, that they shall clarify in their publicity that they are not Art. 9 Products. At the end of 2022, the FSMA issued Communication FSMA_2022_31 on pre-contractual disclosures for the financial products referred to in Art. 8 and 9 SFDR, addressed to insurance companies. As the reporting of issuers under the EU Taxonomy is not yet available as of 1 January 2023, the FSMA intends to prevent firms from indicating in the templates of pre-contractual information on sustainability they are required to make available for financial products referred to in Art. 8 and 9 SFDR that they invest in economic activities classified as environmentally sustainable under the EU Taxonomy. This position was also repeated in the Communication FSMA_2023_01 with Q&As on the entry into force of Commission Delegated Regulation (EU) 2022/1288 supplementing SFDR with regulatory technical standards on asset management. The FSMA also states that UCITS and AIFs that do not meet the requirements of Art. 8 SFDR or do not have a sustainable investment objective should not advertise ESG characteristics or sustainability to avoid any greenwashing. |
| Does the current legal framework provide a definition of greenwashing? If yes, how it is defined, is the definition regulatory-binding? | On the Belgian level, no legal definition exists to date. That said, the Belgian Federal Ministry of Economy included a description of greenwashing in its SPF Economy Guidelines. In the SPF Economy Guidelines, greenwashing is described as “commercial practices, which consist of misusing a green positioning or environmental practices for marketing purposes. (...) Greenwashing can include all forms of business-to-consumer commercial practices related to the environmental characteristics of goods or services. In other words, a company engages in greenwashing if: the product which ecological merits the company promotes attaches little or no importance to the environment; sustainability arguments are cited whilst the company is little or not at all committed to a sustainability approach; the message it conveys to consumers is misleading as to its sustainable development efforts or the environmental quality of a product it promotes”. The SPF Economy Guidelines explicitly mention that they are subject to change and can be adapted at any time. This definition is not regulatory binding. |
| What are the main challenges legal experts see in addressing greenwashing in the EU financial/banking sector and what are the main challenges in implementing the existing regulatory framework to address greenwashing within the EU financial/banking... | The main problem for Belgian financial institutions is the lack of correct, consistent and complete data on the sustainability of companies (for example, because the full reporting framework for companies is not yet in place). This may result in unintentional misrepresentation. Under the current laws, there is no materiality or intention criterium. So, even if a Belgian financial institution has used reasonable care, even if it has done due diligence, but ultimately it has relied on flawed, incorrect data – it can be held liable for greenwashing under the current Belgian prospectus, MiFID II and fund rules as well as under general marketing laws. |
| Are there any relevant links to national legislation and/or guidance? | SPF Economy Guidelines (French): https://economie.fgov.be/sites/default/files/Files/Entreprises/Guide-pratique-Bonnes-pratiques-en-matiere-d-Allegations-environnementales.pdf |
Greenwashing in the EU Financial Sector
Belgium does not have an explicit legal framework to identify, address and sanction greenwashing in the financial sector. However, various specific financial legislations may be applicable to greenwashing.
Prospectus Law: A plaintiff may base a claim on art. 26, §2 of the Law of 11 July 2018 on public offers of investment instruments and the admission to trading of investment instruments on regulated markets ("Prospectus Law") if, in the context of a public offering, a prospectus were to contain misleading information. Under art. 26, §2 Prospectus Law, the persons responsible for the prospectus will be jointly and severally liable vis-à-vis the investor to make good the damage caused by the misleading or the incomplete nature of the information in the prospectus. The disadvantage caused to the investor is, subject to proof to the contrary, deemed to result from the omission or the misleading or inaccurate character of the information in the prospectus, if the lack of this information or the misleading or incorrect character, is of such a nature that a positive climate could be created on the market or the purchase price of the investment instruments could be positively influenced.
In order to benefit from the rebuttal of proof in art. 26, §2 Prospectus Law, a potential plaintiff thus will need to prove not only that the prospectus contained misleading information or omitted relevant information – as an apparent consequence of greenwashing – but also the fact that this may have created a positive market sentiment or otherwise positively influenced the purchase price of the investment instruments.
A second potential legal basis is art. 26, §5 Prospectus Law. This would envisage the situation where the information in the prospectus itself is complete and correct but is contradicted by other, misleading greenwashing information in marketing materials. In short, the issuer of investment instruments (as well as the offeror, or the intermediaries appointed by it) will be liable for the disadvantage caused by any misleading, incorrect or inconsistent information with regard to the prospectus that is contained in the relevant market materials. Unless there is evidence to the contrary, the disadvantage to the investor will be deemed to have resulted from the misleading, inaccurate or inconsistent nature of such information, if it could create a positive market climate or if it could positively influence the purchase price of the investment instruments.
Fund regulations: Similar (though not identical) provisions exist in art. 63 of the Law of 3 August 2012 on undertakings for collective investment meeting the conditions of Directive 2009/65/EC and undertakings for investment in receivables ("UCITS Law") and art. 228 of the Law of 19 April 2014 on alternative collective investment undertakings and their managers ("AIFM Law").
MiFID II: With respect to investment services under MiFID2, art. 27bis, §1 of the Law of 2 August 2002 on the supervision of the financial sector and financial services ("Law of 2 August 2002") provides another route for the potential legal challenge: when a credit institution or MiFID firm is offering or providing financial products or services, all information provided by such company to its clients or potential clients, including advertising communications, must be correct, clear and not misleading. This can be read together with art. 30ter of the Law of 2 August 2002: if a plaintiff can prove that due to greenwashing, a publicity is incorrect or misleading, and if the client can prove that it suffers damage as a result of the related financial transaction, the transaction concerned is deemed to be the result of the greenwashing, except evidence to the contrary.
Insurance: Finally, greenwashing by insurers or insurance distributors may result in liability under art. 279, §1 of the Law of 4 April 2014 on insurances ("Insurance Law") which requires all information provided by insurance distributors to their clients or potential clients related to insurance, including advertising statements, to be correct, clear and not misleading.
Consumer Law: Art. VI.97 of the Code of Economic Law ("CEL"):
Greenwashing can be considered a misleading commercial practice under art. VI.97 CEL. Under art. VI.97 CEL, a commercial practice shall be regarded as misleading if it is accompanied by false information and is therefore based on untruths or, even if the information is factually correct, deceives or is likely to deceive the average consumer in any way (including through its general presentation) in respect of the main characteristics of the product, and in either case causes or is likely to cause the average consumer to take a transactional decision that such consumer would not have taken otherwise.
Art. VI.99 CEL: As greenwashing will regularly involve the omission of material information, art. VI.99, §2 CEL may come into play. A misleading omission includes a commercial practice that (1) hides essential information necessary to make an informed transactional decision, (2) provides it in an unclear, incomprehensible, ambiguous or late manner, or (3) if it is not already apparent from the context, does not make it apparent; and in either case causes or is likely to cause the average consumer to take a transactional decision that such consumer would not have taken otherwise.
Art. VI.100 CEL: To the extent that the greenwashing pertains to misleading claims on (sustainable finance) labels, it can also be considered unfair in all circumstances under art. VI.100, 2° CEL. Claims on adhering to codes of conduct when this is not the case would similarly be deemed unfair in all circumstances under art. VI.100, 1° CEL.
The requirements stemming from financial law mainly derive from European legislation (in particular from Directive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers, Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities, Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC, Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU and Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution).
Nonetheless, guidelines, communications and positions published by the national regulators, the Financial Services and Markets Authority ("FSMA") and the National Bank of Belgium ("NBB") can be based on both works from the EU regulators as consultations and research, and work carried out on a national level.
Noteworthy are the Guidelines on environmental claims, published by the Belgian Federal Ministry of Economy on 14 June 2022 ("SPF Economy Guidelines") and the FSMA's guidance on sustainable finance, and more specifically on the implementation of Regulation (EU) 2019/2088 on sustainability‐related disclosures in the financial services sector. Both are explained in more detail in the sections below.
The SPF Economy Guidelines aim to raise companies' awareness and help them check whether environmental claims they make are relevant. It sets out the main principles of greenwashing and identifies good practices to avoid misleading claims while also clarifying regulations based on concrete situations.
Aside from that, greenwashing is addressed through sectoral and general provisions as well as guidelines from the regulators. In any sector, greenwashing may potentially fall within the scope of the provisions of Book VI of the CEL as discussed above in section 1. These are the only general and transversal prohibitions that apply today, across all sectors, including the financial sector.
In its 2022 presentation "20 Projects for the Future", the FSMA declared its intention to screen investment funds on potential greenwashing via data analysis. Moreover, in its Communication FSMA_2021_06 on the entry into force of SFDR, the FSMA clarified the SFDR rules applicable to financial institutions from a product- and entity-level and the FSMA's expectations in this respect in order to avoid any risk of greenwashing. The FSMA states, among other things, that the use of the term "sustainable investment" is reserved for Art. 9 Products, that other UCITS and AIFs should avoid the word "sustainable" in their publicity as much as possible and, if this would not be possible, that they shall clarify in their publicity that they are not Art. 9 Products. At the end of 2022, the FSMA issued Communication FSMA_2022_31 on pre-contractual disclosures for the financial products referred to in Art. 8 and 9 SFDR, addressed to insurance companies. As the reporting of issuers under the EU Taxonomy is not yet available as of 1 January 2023, the FSMA intends to prevent firms from indicating in the templates of pre-contractual information on sustainability they are required to make available for financial products referred to in Art. 8 and 9 SFDR that they invest in economic activities classified as environmentally sustainable under the EU Taxonomy. This position was also repeated in the Communication FSMA_2023_01 with Q&As on the entry into force of Commission Delegated Regulation (EU) 2022/1288 supplementing SFDR with regulatory technical standards on asset management. The FSMA also states that UCITS and AIFs that do not meet the requirements of Art. 8 SFDR or do not have a sustainable investment objective should not advertise ESG characteristics or sustainability to avoid any greenwashing.
On the Belgian level, no legal definition exists to date. That said, the Belgian Federal Ministry of Economy included a description of greenwashing in its SPF Economy Guidelines.
In the SPF Economy Guidelines, greenwashing is described as “commercial practices, which consist of misusing a green positioning or environmental practices for marketing purposes. (...) Greenwashing can include all forms of business-to-consumer commercial practices related to the environmental characteristics of goods or services. In other words, a company engages in greenwashing if: the product which ecological merits the company promotes attaches little or no importance to the environment; sustainability arguments are cited whilst the company is little or not at all committed to a sustainability approach; the message it conveys to consumers is misleading as to its sustainable development efforts or the environmental quality of a product it promotes”.
The SPF Economy Guidelines explicitly mention that they are subject to change and can be adapted at any time.
This definition is not regulatory binding.
The main problem for Belgian financial institutions is the lack of correct, consistent and complete data on the sustainability of companies (for example, because the full reporting framework for companies is not yet in place). This may result in unintentional misrepresentation. Under the current laws, there is no materiality or intention criterium. So, even if a Belgian financial institution has used reasonable care, even if it has done due diligence, but ultimately it has relied on flawed, incorrect data – it can be held liable for greenwashing under the current Belgian prospectus, MiFID II and fund rules as well as under general marketing laws.
SPF Economy Guidelines (French): https://economie.fgov.be/sites/default/files/Files/Entreprises/Guide-pratique-Bonnes-pratiques-en-matiere-d-Allegations-environnementales.pdf
Code of Economic Law (French): http://www.ejustice.just.fgov.be/eli/loi/2013/02/28/2013A11134/justel
FSMA Communication FSMA_2021_06 (French):
https://www.fsma.be/sites/default/files/legacy/content/FR/circ/2021/fsma_2021_06_fr.pdf
FSMA Communication FSMA_2022_31 (French):
https://www.fsma.be/sites/default/files/media/files/2022-12/fsma_2022_31_fr.pdf
FSMA Communication FSMA_2023_01 (French): https://www.fsma.be/sites/default/files/media/files/2023-01/fsma_2023_01_fr.pdf