Greenwashing in the EU Financial Sector |
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Ireland |
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(Europe)
Firm
Arthur Cox
Contributors Updated 1 June 2023 |
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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,... | Ireland does not have an explicit legal framework to identify, address or sanction greenwashing in the financial sector. However, certain financial sector rules that apply generally to financial services providers could operate to prohibit and sanction greenwashing. The Consumer Protection Code 2012 (the "CPC 2012") applies to financial services providers regulated by the Central Bank of Ireland (the "CBI") or financial services providers authorized by another EU/EEA member state and performing regulated activities in Ireland. The majority of the CPC 2012's provisions apply to regulated firms in their dealings with "consumers", i.e. natural persons and incorporated bodies with an annual turnover of EUR 3 million or less. These provisions include detailed rules concerning the mitigation of conflicts of interest, the suitability of financial products for consumers' needs and objectives and the form and content of information that must be provided to consumers. The CPC 2012 also contains general principles that apply to regulated firms in their dealings with all customers, not only "consumers". These include requirements for a firm to act "honestly, fairly and professionally in the best interests of its customers and the integrity of the market" and to "not recklessly, negligently or deliberately mislead a customer as to the real or perceived advantages or disadvantages of any product or service". The European Union (Markets in Financial Instruments) Regulations 2017 (the "MiFID II Regulations"), which transpose the Markets in Financial Instruments Directive II (Directive (EU) 2014/65) ("MiFID II") into Irish law, contain similar requirements for investment firms who provide investment services and activities. These requirements include mitigation of conflicts of interest, a duty to act honestly, fairly and professionally in accordance with clients' best interests, to ensure all information provided to clients and potential clients is fair, clear and not misleading and to assess the suitability and appropriateness of products and services for clients. The Consumer Protection Act 2007 (the "2007 Act") prohibits false and misleading commercial practices; these are criminal offenses under the 2007 Act. The 2007 Act applies to "traders" (which can include financial service providers) in their dealings with "consumers" (i.e., natural persons acting outside their trade, business or profession). Finally, in a November 2021 industry letter (the "2021 Letter"), the CBI outlined its supervisory expectations of regulated firms regarding climate and other ESG issues. Among other expectations, the CBI emphasized the need for firms to engage in transparent disclosure to protect consumers and investors and to avoid greenwashing. We also note that the Advertising Standards Authority of Ireland (“ASAI”) which is an independent self-regulatory body set up and financed by the advertising industry, publishes rules in the Code of Standards for Advertising and Marketing Communications in Ireland (the "ASAI Code"). The ASAI Code includes provisions covering environmental claims made by advertisers. Members of ASAI are required to abide by the ASAI Code and not to publish an advertisement or conduct a promotion that contravenes ASAI Code rules. |
| Is the relevant legal framework based on the EU or on the national legislation? | The measures outlined above exist under national law, although certain aspects of this legislation are based on EU Directives. The CPC 2012 is a code issued under Irish national law by the CBI. CPC 2012 does however reference certain EU legislation (such as MiFID II and the Second Payment Services Directive (Directive (EU) 2015/2366)) but the CPC 2012 has been adopted pursuant to powers granted to the CBI under Irish legislation. As noted above, the CPC 2012 is binding on the financial services providers it applies to and the CBI has the power to administer sanctions for contraventions of the CPC 2012 under Part IIIC of the Central Bank Act 1942. As noted above, the MiFID II Regulations transpose MiFID II into Irish law. The 2007 Act transposes the Unfair Commercial Practices Directive (Directive 2005/29/EC) into Irish law. The 2021 Letter is not strictly binding on regulated financial services providers under national law, but the CBI expects that firms give the contents of the 2021 Letter due regard as it outlines the CBI's supervisory expectations regarding ESG matters. The letter references the transparency and disclosure principles and requirements under the Taxonomy Regulation (Regulation (EU) 2929/852), the Corporate Sustainability Reporting Directive (Directive (EU) 2022/2464), the Sustainable Finance Disclosures Regulation (Regulation (EU) 2019/2088) and relevant requirements of the European Supervisory Authorities. |
| Is greenwashing, which may occur in the financial sector, addressed specifically and/or any differently from greenwashing in other sectors? | Greenwashing in the financial sector is addressed differently from greenwashing in other sectors in that certain legislation, codes and regulatory guidance apply to regulated financial service providers that do not apply to other sectors. The CPC 2012, MiFID II Regulations and 2021 Letter (along with other codes, guidance and industry communications issued by the CBI) apply only to financial services providers that are either authorized by the CBI or supervised by the CBI for the conduct of business purposes. The MiFID II Regulations apply only to investment firms that provide investment services and activities in relation to MiFID II-regulated financial instruments. The 2007 Act applies beyond the financial sector; it covers "traders", meaning a person acting for purposes related to their trade, business or profession (or a person acting on such a person's behalf). |
| Does the current legal framework provide a definition of greenwashing? If yes, how it is defined, is the definition regulatory-binding? | There is currently no definition of greenwashing under Irish 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... | Complexity and novelty of ESG standards: ESG-related legal standards are technically complex, novel and evolving. Regulated entities are still in the process of developing the necessary expertise (e.g., through training and recruitment of qualified staff) to ensure compliance with these standards. The concepts and metrics used in, for example, SFDR and the EU Taxonomy, are difficult to understand, interpret and apply. Legal uncertainty: The lack of a legal definition of greenwashing and of guidance on what may constitute greenwashing creates legal uncertainty. Lack of reliable data: There is currently a lack of reliable data that can be used to verify claims regarding financial products' ESG characteristics/objectives. Equally, there is no framework that would allow market participants to rely on data/reports produced by third parties. Resourcing of supervisory authorities: Supervisory authorities will struggle to supervise regulated entities and enforce greenwashing-related legislation in a consistent and effective manner without adequate resourcing (including training and hiring of qualified staff). In particular, authorities require legal, technical and data analysis expertise. |
| Are there any relevant links to national legislation and/or guidance? | Please note that consolidated versions of Irish legislation are not publically available. The below links may not represent the up-to-date versions of the relevant legislation/regulatory code: Full CPC 2012 (2015): Amendments to the CPC 2012 are made by Addenda - please see here: An unofficial consolidation of the CPC 2012 is available here (revised 1 January 2015):
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Greenwashing in the EU Financial Sector
Ireland does not have an explicit legal framework to identify, address or sanction greenwashing in the financial sector. However, certain financial sector rules that apply generally to financial services providers could operate to prohibit and sanction greenwashing.
The Consumer Protection Code 2012 (the "CPC 2012") applies to financial services providers regulated by the Central Bank of Ireland (the "CBI") or financial services providers authorized by another EU/EEA member state and performing regulated activities in Ireland. The majority of the CPC 2012's provisions apply to regulated firms in their dealings with "consumers", i.e. natural persons and incorporated bodies with an annual turnover of EUR 3 million or less. These provisions include detailed rules concerning the mitigation of conflicts of interest, the suitability of financial products for consumers' needs and objectives and the form and content of information that must be provided to consumers.
The CPC 2012 also contains general principles that apply to regulated firms in their dealings with all customers, not only "consumers". These include requirements for a firm to act "honestly, fairly and professionally in the best interests of its customers and the integrity of the market" and to "not recklessly, negligently or deliberately mislead a customer as to the real or perceived advantages or disadvantages of any product or service".
The European Union (Markets in Financial Instruments) Regulations 2017 (the "MiFID II Regulations"), which transpose the Markets in Financial Instruments Directive II (Directive (EU) 2014/65) ("MiFID II") into Irish law, contain similar requirements for investment firms who provide investment services and activities. These requirements include mitigation of conflicts of interest, a duty to act honestly, fairly and professionally in accordance with clients' best interests, to ensure all information provided to clients and potential clients is fair, clear and not misleading and to assess the suitability and appropriateness of products and services for clients.
The Consumer Protection Act 2007 (the "2007 Act") prohibits false and misleading commercial practices; these are criminal offenses under the 2007 Act. The 2007 Act applies to "traders" (which can include financial service providers) in their dealings with "consumers" (i.e., natural persons acting outside their trade, business or profession).
Finally, in a November 2021 industry letter (the "2021 Letter"), the CBI outlined its supervisory expectations of regulated firms regarding climate and other ESG issues. Among other expectations, the CBI emphasized the need for firms to engage in transparent disclosure to protect consumers and investors and to avoid greenwashing.
We also note that the Advertising Standards Authority of Ireland (“ASAI”) which is an independent self-regulatory body set up and financed by the advertising industry, publishes rules in the Code of Standards for Advertising and Marketing Communications in Ireland (the "ASAI Code"). The ASAI Code includes provisions covering environmental claims made by advertisers. Members of ASAI are required to abide by the ASAI Code and not to publish an advertisement or conduct a promotion that contravenes ASAI Code rules.
The measures outlined above exist under national law, although certain aspects of this legislation are based on EU Directives.
The CPC 2012 is a code issued under Irish national law by the CBI. CPC 2012 does however reference certain EU legislation (such as MiFID II and the Second Payment Services Directive (Directive (EU) 2015/2366)) but the CPC 2012 has been adopted pursuant to powers granted to the CBI under Irish legislation. As noted above, the CPC 2012 is binding on the financial services providers it applies to and the CBI has the power to administer sanctions for contraventions of the CPC 2012 under Part IIIC of the Central Bank Act 1942.
As noted above, the MiFID II Regulations transpose MiFID II into Irish law. The 2007 Act transposes the Unfair Commercial Practices Directive (Directive 2005/29/EC) into Irish law.
The 2021 Letter is not strictly binding on regulated financial services providers under national law, but the CBI expects that firms give the contents of the 2021 Letter due regard as it outlines the CBI's supervisory expectations regarding ESG matters. The letter references the transparency and disclosure principles and requirements under the Taxonomy Regulation (Regulation (EU) 2929/852), the Corporate Sustainability Reporting Directive (Directive (EU) 2022/2464), the Sustainable Finance Disclosures Regulation (Regulation (EU) 2019/2088) and relevant requirements of the European Supervisory Authorities.
Greenwashing in the financial sector is addressed differently from greenwashing in other sectors in that certain legislation, codes and regulatory guidance apply to regulated financial service providers that do not apply to other sectors.
The CPC 2012, MiFID II Regulations and 2021 Letter (along with other codes, guidance and industry communications issued by the CBI) apply only to financial services providers that are either authorized by the CBI or supervised by the CBI for the conduct of business purposes. The MiFID II Regulations apply only to investment firms that provide investment services and activities in relation to MiFID II-regulated financial instruments.
The 2007 Act applies beyond the financial sector; it covers "traders", meaning a person acting for purposes related to their trade, business or profession (or a person acting on such a person's behalf).
There is currently no definition of greenwashing under Irish law.
Complexity and novelty of ESG standards: ESG-related legal standards are technically complex, novel and evolving. Regulated entities are still in the process of developing the necessary expertise (e.g., through training and recruitment of qualified staff) to ensure compliance with these standards. The concepts and metrics used in, for example, SFDR and the EU Taxonomy, are difficult to understand, interpret and apply.
Legal uncertainty: The lack of a legal definition of greenwashing and of guidance on what may constitute greenwashing creates legal uncertainty.
Lack of reliable data: There is currently a lack of reliable data that can be used to verify claims regarding financial products' ESG characteristics/objectives. Equally, there is no framework that would allow market participants to rely on data/reports produced by third parties.
Resourcing of supervisory authorities: Supervisory authorities will struggle to supervise regulated entities and enforce greenwashing-related legislation in a consistent and effective manner without adequate resourcing (including training and hiring of qualified staff). In particular, authorities require legal, technical and data analysis expertise.
Please note that consolidated versions of Irish legislation are not publically available. The below links may not represent the up-to-date versions of the relevant legislation/regulatory code:
Full CPC 2012 (2015):
Amendments to the CPC 2012 are made by Addenda - please see here:
An unofficial consolidation of the CPC 2012 is available here (revised 1 January 2015):
- https://www.centralbank.ie/docs/default-source/regulation/consumer-protection/other-codes-of-conduct/unofficial-consolidation-of-the-consumer-protection-code.pdf?sfvrsn=edd0811d_7
- https://www.irishstatutebook.ie/eli/2017/si/375/made/en/print
- https://www.irishstatutebook.ie/eli/2007/act/19/enacted/en/html
- https://www.centralbank.ie/docs/default-source/news-and-media/press-releases/governor-letter-climate-expectations-november-2021