Greenwashing in the EU Financial Sector |
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Cyprus |
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(Europe)
Firm
Chrysostomides Advocates & Legal Consultants
Contributors
Eleni Chrysostomides |
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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,... | No. The Cypriot legal framework does not explicitly address greenwashing but EU Financial Services law and regulation are usually transposed faithfully and are frequently not gold-plated. As such provisions relating to the accuracy of information are present and could potentially be used to address greenwashing. We note for example that article 24 of MiFID regarding general principles and information to clients and requires that all marketing communications addressed to clients are fair, clear and not misleading. This has been replicated in article 25 of the local law. The Cyprus Securities and Exchange Commission ("CySEC") has not released any policy statements, directives or guidelines that set out specific prohibitions in relation to greenwashing. However, its position with regard to Environmental, Social and Corporate Governance states the following regarding greenwashing: "CySEC considers the risks of mislabeling, misrepresenting and misselling to be particularly relevant in the case of sustainable finance. Such risks are encapsulated in the term Greenwashing. CySEC’s role is to ensure that investors are not being misled by unscrupulous firms and in case such cases are identified that there are strict consequences for such firms." The process for imposing sanctions and/or consequences upon firms is not specified and our understanding is that ordinary supervisory and enforcement tools would be used to remedy any identified greenwashing. In relation to the banking sector, the Governor of the Central Bank of Cyprus addressed environmental risk in a speech given in July of 2022 stating that "Banks must intensify their efforts to this regard by incorporating climate and environmental factors in their business strategies and risk frameworks, adopting in that way a more socially responsible operating norm. However, this is not enough. Once again, coordinated action by all European bodies is also required in order to introduce where needed the necessary reforms that would steer the financial sector in the direction of properly managing climate risk in a transparent way." There were no specific references to greenwashing and the Central Bank of Cyprus does not appear to have explicitly addressed the issue. |
| Is the relevant legal framework based on the EU or on the national legislation? | The relevant financial sector legal framework is based on the EU financial sector legal framework. Local Directives published by CySEC supplement the EU framework but they do not specifically address greenwashing. CySEC's supervisory and enforcement powers and the applicable process for exercising them may be set out in secondary legislation or may be contained in laws transposing EU Directives and they would apply in the event of action being taken in relation to greenwashing. |
| Is greenwashing, which may occur in the financial sector, addressed specifically and/or any differently from greenwashing in other sectors? | Greenwashing which may occur in the financial sector at present would be addressed through provisions that apply to the misleading marketing or claims made generally in the financial sector. As such these provisions would not apply to greenwashing occurring in other sectors. |
| Does the current legal framework provide a definition of greenwashing? If yes, how it is defined, is the definition regulatory-binding? | No, there is no legal definition of greenwashing under local law. |
| 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... | In our view, the most significant challenge would be determining and capturing the science-based and technical criteria that can measure and verify the "green" claims made so as to assess their veracity. The volume of data relating to the "green" impact (especially long-term ) of a product/service that may need to be collected and reviewed is another challenge. Without clearly defined and accepted criteria that are implemented across the board, it will also be difficult to even identify greenwashing before seeking to evidence it in order to sanction it. We refer to our above responses in relation to the adequacy of the current framework for addressing greenwashing. In our view, a tailor-made framework for addressing greenwashing would be more suitable than the existing framework. The absence of any generally accepted criteria for measuring the environmental costs or benefits of a product or service represents an additional challenge in relation to employing the current framework for addressing greenwashing. |
| Are there any relevant links to national legislation and/or guidance? | CySEC - Resource on Sustainable Finance: https://www.cysec.gov.cy/en-GB/cysec/sustainable-finance/ Governor's speech at the 26th Annual Economist Government Roundtable: |
Greenwashing in the EU Financial Sector
Cyprus
(Europe) Firm Chrysostomides Advocates & Legal ConsultantsContributors Eleni Chrysostomides Chryso Dekatris
Updated 1 June 2023No. The Cypriot legal framework does not explicitly address greenwashing but EU Financial Services law and regulation are usually transposed faithfully and are frequently not gold-plated. As such provisions relating to the accuracy of information are present and could potentially be used to address greenwashing. We note for example that article 24 of MiFID regarding general principles and information to clients and requires that all marketing communications addressed to clients are fair, clear and not misleading. This has been replicated in article 25 of the local law.
The Cyprus Securities and Exchange Commission ("CySEC") has not released any policy statements, directives or guidelines that set out specific prohibitions in relation to greenwashing. However, its position with regard to Environmental, Social and Corporate Governance states the following regarding greenwashing: "CySEC considers the risks of mislabeling, misrepresenting and misselling to be particularly relevant in the case of sustainable finance. Such risks are encapsulated in the term Greenwashing. CySEC’s role is to ensure that investors are not being misled by unscrupulous firms and in case such cases are identified that there are strict consequences for such firms."
The process for imposing sanctions and/or consequences upon firms is not specified and our understanding is that ordinary supervisory and enforcement tools would be used to remedy any identified greenwashing.
In relation to the banking sector, the Governor of the Central Bank of Cyprus addressed environmental risk in a speech given in July of 2022 stating that "Banks must intensify their efforts to this regard by incorporating climate and environmental factors in their business strategies and risk frameworks, adopting in that way a more socially responsible operating norm. However, this is not enough. Once again, coordinated action by all European bodies is also required in order to introduce where needed the necessary reforms that would steer the financial sector in the direction of properly managing climate risk in a transparent way."
There were no specific references to greenwashing and the Central Bank of Cyprus does not appear to have explicitly addressed the issue.
The relevant financial sector legal framework is based on the EU financial sector legal framework.
Local Directives published by CySEC supplement the EU framework but they do not specifically address greenwashing. CySEC's supervisory and enforcement powers and the applicable process for exercising them may be set out in secondary legislation or may be contained in laws transposing EU Directives and they would apply in the event of action being taken in relation to greenwashing.
Greenwashing which may occur in the financial sector at present would be addressed through provisions that apply to the misleading marketing or claims made generally in the financial sector. As such these provisions would not apply to greenwashing occurring in other sectors.
No, there is no legal definition of greenwashing under local law.
In our view, the most significant challenge would be determining and capturing the science-based and technical criteria that can measure and verify the "green" claims made so as to assess their veracity. The volume of data relating to the "green" impact (especially long-term ) of a product/service that may need to be collected and reviewed is another challenge. Without clearly defined and accepted criteria that are implemented across the board, it will also be difficult to even identify greenwashing before seeking to evidence it in order to sanction it.
We refer to our above responses in relation to the adequacy of the current framework for addressing greenwashing. In our view, a tailor-made framework for addressing greenwashing would be more suitable than the existing framework. The absence of any generally accepted criteria for measuring the environmental costs or benefits of a product or service represents an additional challenge in relation to employing the current framework for addressing greenwashing.
CySEC - Resource on Sustainable Finance: https://www.cysec.gov.cy/en-GB/cysec/sustainable-finance/
Governor's speech at the 26th Annual Economist Government Roundtable:
https://www.centralbank.cy/en/the-governor/governor-s-speeches/07-07-2022