Greenwashing in the EU Financial Sector |
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Latvia |
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(Europe)
Firm
Ellex Klavins
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,... | No, currently the Latvian jurisdiction does not have an explicit legal framework to identify, address and sanction greenwashing. However, in general, legal provisions such as Consumer Rights Protection Law and Unfair Commercial Practices Prohibition Law do address misleading commercial practice prohibition where greenwashing could fall within the scope. The penalty for misleading commercial practice ranges from EUR 100,000 to 0.4% of total annual revenue or EUR 2 million if revenue data is not available. Also, Law on Alternative Investment Funds and Managers Thereof requires alternative investment fund managers to act as honest, careful, and diligent professionals. The same requirement is also established in Law on Investment Management Companies. The requirement would apply to greenwashing in terms of intentionally misleading behavior which goes against the meaning of honest and diligent professional. Moreover, local government authorities have also raised attention to greenwashing. For example, the Financial and Capital Market Commission (FCMC) has developed a sustainability strategy where greenwashing is set to be one of the top priorities for supervision. Also, FCMC has issued a roadmap for a sustainable finance sector in Latvia. The roadmap addresses institutions' plans to exclude any possible greenwashing in their activities. At the same time, the Ministry of Environmental Protection and Regional Development has given an informative explanation of greenwashing in their "Frequently asked questions" section. The Ministry defines greenwashing as an "unsubstantiated or misleading statement about the environmental impact of a product, service, technology or business. With it, companies or products are positioned more environmentally friendly than they actually are." However, this explanation is not considered legally binding and is for the general public for informative purposes only. |
| Is the relevant legal framework based on the EU or on the national legislation? | The relevant legal framework mostly derives from EU legislation. For example, norms concerning unfair commercial practice under the Unfair Commercial Practices Prohibition Law derive from Directive 2005/29/EC concerning unfair business-to-consumer commercial practices in the internal market. Also, most Latvian financial sector regulations such as the Law on Investment Management Companies and the Law on Alternative Investment Funds and Managers Thereof derive from EU legislation. However, the requirement for financial sector participants to act as honest, careful and diligent service providers stems from national legislation. |
| Is greenwashing, which may occur in the financial sector, addressed specifically and/or any differently from greenwashing in other sectors? | No, currently greenwashing in the financial sector is addressed by legal regulation which stems from general provisions applicable to most sectors. The main prohibition of unfair commercial practice is currently laid down by law which covers all sector legal entities. Also, the requirement for financial sector participants to act as honest, careful and diligent service providers stems from Commercial Law. |
| Does the current legal framework provide a definition of greenwashing? If yes, how it is defined, is the definition regulatory-binding? | Current Latvian regulation does not provide a general definition for greenwashing. However, the Unfair Commercial Practices Prohibition Law provides general prohibitions for misleading commercial practices. |
| 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... | Lack of clarity: there is no clear legal definition of greenwashing. Only available explanations from national authorities are not legally binding and do not provide a thorough explanation. Lack of legal framework: there is no clear legal regulation for greenwashing. Currently regulatory framework mostly relies on defining greenwashing under generally applicable provisions of misleading marketing practice and consumer protection, as well as a general requirement for financial market participants to act as honest, careful and diligent professionals. Lack of awareness: there are no adequate legal tools for financial market participants to assess whether their activities would constitute greenwashing. There is general confusion as to what would be considered greenwashing in the financial sector as well as to what extent greenwashing is applicable, however, currently, no guidelines or instructions are available. |
| Are there any relevant links to national legislation and/or guidance? | Law on Alternative Investment Funds and Managers Thereof: https://likumi.lv/ta/en/en/id/258477-law-on-alternative-investment-funds-and-managers-thereof Consumer Rights Protection Law: https://likumi.lv/ta/en/en/id/23309-consumer-rights-protection-law Unfair Commercial Practices Prohibition Law: https://likumi.lv/ta/en/en/id/167759-unfair-commercial-practices-prohibition-law Law on Investment Management Companies: https://likumi.lv/ta/en/en/id/52953-law-on-investment-management-companies Financial and Capital Market Commission Has Developed a Roadmap: https://www.bank.lv/en/operational-areas/supervision/supervision-of-sustainability-of-the-financial-sector Ministry of Environmental Protection and Regional Development. Frequently asked questions (only in Latvian): https://www.varam.gov.lv/lv/biezak-uzdotie-jautajumi-buj |
Greenwashing in the EU Financial Sector
No, currently the Latvian jurisdiction does not have an explicit legal framework to identify, address and sanction greenwashing. However, in general, legal provisions such as Consumer Rights Protection Law and Unfair Commercial Practices Prohibition Law do address misleading commercial practice prohibition where greenwashing could fall within the scope. The penalty for misleading commercial practice ranges from EUR 100,000 to 0.4% of total annual revenue or EUR 2 million if revenue data is not available.
Also, Law on Alternative Investment Funds and Managers Thereof requires alternative investment fund managers to act as honest, careful, and diligent professionals. The same requirement is also established in Law on Investment Management Companies. The requirement would apply to greenwashing in terms of intentionally misleading behavior which goes against the meaning of honest and diligent professional.
Moreover, local government authorities have also raised attention to greenwashing. For example, the Financial and Capital Market Commission (FCMC) has developed a sustainability strategy where greenwashing is set to be one of the top priorities for supervision. Also, FCMC has issued a roadmap for a sustainable finance sector in Latvia. The roadmap addresses institutions' plans to exclude any possible greenwashing in their activities.
At the same time, the Ministry of Environmental Protection and Regional Development has given an informative explanation of greenwashing in their "Frequently asked questions" section. The Ministry defines greenwashing as an "unsubstantiated or misleading statement about the environmental impact of a product, service, technology or business. With it, companies or products are positioned more environmentally friendly than they actually are." However, this explanation is not considered legally binding and is for the general public for informative purposes only.
The relevant legal framework mostly derives from EU legislation. For example, norms concerning unfair commercial practice under the Unfair Commercial Practices Prohibition Law derive from Directive 2005/29/EC concerning unfair business-to-consumer commercial practices in the internal market. Also, most Latvian financial sector regulations such as the Law on Investment Management Companies and the Law on Alternative Investment Funds and Managers Thereof derive from EU legislation. However, the requirement for financial sector participants to act as honest, careful and diligent service providers stems from national legislation.
No, currently greenwashing in the financial sector is addressed by legal regulation which stems from general provisions applicable to most sectors. The main prohibition of unfair commercial practice is currently laid down by law which covers all sector legal entities. Also, the requirement for financial sector participants to act as honest, careful and diligent service providers stems from Commercial Law.
Current Latvian regulation does not provide a general definition for greenwashing. However, the Unfair Commercial Practices Prohibition Law provides general prohibitions for misleading commercial practices.
Lack of clarity: there is no clear legal definition of greenwashing. Only available explanations from national authorities are not legally binding and do not provide a thorough explanation.
Lack of legal framework: there is no clear legal regulation for greenwashing. Currently regulatory framework mostly relies on defining greenwashing under generally applicable provisions of misleading marketing practice and consumer protection, as well as a general requirement for financial market participants to act as honest, careful and diligent professionals.
Lack of awareness: there are no adequate legal tools for financial market participants to assess whether their activities would constitute greenwashing. There is general confusion as to what would be considered greenwashing in the financial sector as well as to what extent greenwashing is applicable, however, currently, no guidelines or instructions are available.
Law on Alternative Investment Funds and Managers Thereof: https://likumi.lv/ta/en/en/id/258477-law-on-alternative-investment-funds-and-managers-thereof
Consumer Rights Protection Law: https://likumi.lv/ta/en/en/id/23309-consumer-rights-protection-law
Unfair Commercial Practices Prohibition Law: https://likumi.lv/ta/en/en/id/167759-unfair-commercial-practices-prohibition-law
Law on Investment Management Companies: https://likumi.lv/ta/en/en/id/52953-law-on-investment-management-companies
Financial and Capital Market Commission Has Developed a Roadmap: https://www.bank.lv/en/operational-areas/supervision/supervision-of-sustainability-of-the-financial-sector
Ministry of Environmental Protection and Regional Development. Frequently asked questions (only in Latvian): https://www.varam.gov.lv/lv/biezak-uzdotie-jautajumi-buj