Greenwashing in the EU Financial Sector |
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Netherlands |
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(Europe)
Firm
Houthoff
Contributors
Jeroen Vossenberg |
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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,... | This is on the agenda of the financial supervisory regulators as well as the Dutch Minister of Finance. Given greenwashing is primarily a conduct issue, this topic is primarily within the remit of the Dutch Authority for the Financial Markets ("AFM"), the Dutch conduct supervisor. Although, if greenwashing results in prudential/financial stability risks, e.g. through misselling or reputational risks, the Dutch Central Bank ("DNB") or ECB, could also take action. Such action would be aimed at managing prudential risks. DNB already warned of reputational risks resulting from greenwashing and risks relating to bubbles in green investments in a report in 2017. The Dutch Financial Sector committed itself to the Paris Climate Accord through the "National Climate Commitment 2019". The Dutch Minister of Finance explicitly refers to the Sustainable Finance Disclosure Regulation (in force since 10 March 2021) and the EU Taxonomy Regulation and points out that the IASB International Sustainability Standards will play an important role in standardizing the reporting of sustainability information. Further, contractual counterparties of financial service providers or mass claim vehicles can try to use civil law and/or consumer law remedies. Potentially greenwashing can be seen as a common criminal offense of fraud and/or deceit, punishable under the Penal Code, Article 326 et seq. The public prosecutor can decide independently to prosecute but it is more usual to act on a complaint by those involved or supervisors. Explicit Legal Framework includes:
Noncompliance with these requirements has been explicitly brought into the scope of the Dutch Authority for the Financial Markets ("AFM") powers to impose administrative penalty payments (article 10 Decree Administrative Penalties Financial Sector). Article 23.0a Decree Prudential Rules requires UCITS fund managers to implement procedures to manage sustainability risk within the meaning of SFDR. In addition, on its website, the AFM refers to article 8 SFDR. Pointing out that merely explaining the sustainability risks of investment products or of underlying investment policies is insufficient to label a product as ESG-positive. In its annual program for 2023 the Dutch Authority for the Financial Markets ("AFM") indicates that in anticipation of EU policy, it will formulate its own approach to the supervision of sustainable investment products, by investigating sustainability aspects of investments, including the use of ESG ratings. The AFM explicitly specifies the prevention of greenwashing as one of its priorities: https://www.afm.nl/nl-nl/sector/actueel/2023/januari/afm-agenda-2023 The requirements applicable to UCITS fund managers and investment firms are enacted in further legislation to the Dutch Financial Supervision Act ("FSA"), particularly (i) the Decree Conduct Supervision; (ii) the Decree Prudential Rules, and (iii) the Decree Administrative Penalties Financial Services. In the field of consumer protection, the UCTD (and implementation in Dutch law) is particularly relevant and relied upon both by supervisory authorities and civil parties to address greenwashing. In addition, general consumer protection laws and marketing laws, including general marketing/pre-contractual information requirements set out in the FSA (particularly articles 4:19 and 4:20 FSA) will apply and can be used in response to false sustainability claims. In particular, greenwashing could constitute an unfair commercial practice as defined in article 6:193a DCC et seq. (which is the implementation of the Unfair Commercial Practices Directive ("UCTD")). If so, the AFM can impose administrative sanctions, such as an administrative fine. Civil parties can also base a claim thereupon. The relevant legal framework is primarily based on the EU legislative framework. The legal framework is not enacted in specialized law or other regulations, only a definition of sustainability risk, which is considered to include risks relating to greenwashing. Moreover, the FSA and UCTD have open standards. Greenwashing can fall within the scope of these standards. To our knowledge, no distinction has been made. However, given the recent focus on this topic, this still has to materialize in best practices and case law. No, only a definition of sustainability risk, which is considered to include risks relating to greenwashing. Moreover, the FSA and UCTD have open standards. Greenwashing can fall within the scope of these standards. |
| Is the relevant legal framework based on the EU or on the national legislation? | Not applicable. |
| Is greenwashing, which may occur in the financial sector, addressed specifically and/or any differently from greenwashing in other sectors? | Not applicable. |
| Does the current legal framework provide a definition of greenwashing? If yes, how it is defined, is the definition regulatory-binding? | Decree Conduct Supervision: https://wetten.overheid.nl/BWBR0020421/2023-01-01 Decree Prudential Rules: https://wetten.overheid.nl/BWBR0020420/2022-09-08 Decree Administrative Penalties Financial Sector: https://wetten.overheid.nl/BWBR0026204/2023-01-01 |
| 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 requirements applicable to UCITS fund managers and investment firms are enacted in further legislation to the Dutch Financial Supervision Act ("FSA"), particularly (i) the Decree Conduct Supervision; (ii) the Decree Prudential Rules, and (iii) the Decree Administrative Penalties financial services. In the field of consumer protection, the UCTD (and implementation in Dutch law) is particularly relevant and relied upon both by supervisory authorities and civil parties to address greenwashing. In addition, general consumer protection laws and marketing laws, including general marketing/pre-contractual information requirements set out in the FSA (particularly articles 4.19 and 4.20 FSA) will apply and can be used in response to false sustainability claims. In particular, greenwashing could constitute an unfair commercial practice as defined in article 6.193a DCC et seq. (which is the implementation of the Unfair Commercial Practices Directive ("UCTD")). If so, the AFM can impose administrative sanctions, such as an administrative fine. Civil parties can also base a claim thereupon. |
| Are there any relevant links to national legislation and/or guidance? | Decree Conduct Supervision: https://wetten.overheid.nl/BWBR0020421/2023-01-01 Decree Prudential Rules: https://wetten.overheid.nl/BWBR0020420/2022-09-08 Decree Administrative Penalties financial sector: https://wetten.overheid.nl/BWBR0026204/2023-01-01 AFM Trend Monitor: https://www.afm.nl/en/over-de-afm/verslaglegging/trendzicht Dutch Civil Law: http://www.dutchcivillaw.com/civilcodebook066.htm |
Greenwashing in the EU Financial Sector
This is on the agenda of the financial supervisory regulators as well as the Dutch Minister of Finance. Given greenwashing is primarily a conduct issue, this topic is primarily within the remit of the Dutch Authority for the Financial Markets ("AFM"), the Dutch conduct supervisor.
Although, if greenwashing results in prudential/financial stability risks, e.g. through misselling or reputational risks, the Dutch Central Bank ("DNB") or ECB, could also take action. Such action would be aimed at managing prudential risks. DNB already warned of reputational risks resulting from greenwashing and risks relating to bubbles in green investments in a report in 2017.
The Dutch Financial Sector committed itself to the Paris Climate Accord through the "National Climate Commitment 2019". The Dutch Minister of Finance explicitly refers to the Sustainable Finance Disclosure Regulation (in force since 10 March 2021) and the EU Taxonomy Regulation and points out that the IASB International Sustainability Standards will play an important role in standardizing the reporting of sustainability information.
Further, contractual counterparties of financial service providers or mass claim vehicles can try to use civil law and/or consumer law remedies. Potentially greenwashing can be seen as a common criminal offense of fraud and/or deceit, punishable under the Penal Code, Article 326 et seq.
The public prosecutor can decide independently to prosecute but it is more usual to act on a complaint by those involved or supervisors.
Explicit Legal Framework includes:
- Article 1 Dutch Decree Conduct Supervision financial enterprises ("Decree Conduct Supervision"), contains a definition of sustainability risk, based on the SFDR.
- Article 30(7) Decree Conduct Supervision, requires UCITS fund managers to implement sustainability risk in the management of each UCITS managed by it. The official clarification to this subclause explicitly refers to risks resulting from misselling and greenwashing.
- Article 32(6) Decree Conduct Supervision, requires investment firms, issuing, developing, composing or distributing financial instruments, to take into account the sustainability goals of their target markets (i.e. target client groups) when analyzing and determining their investment goals.
- Article 32a(1) and 32b Decree Conduct Supervision explicitly specify that the investment goals of the target market shall include their sustainability goals.
- Article 126a(2)(c) Decree Conduct Supervision requires UCITS fund managers to adequately cover conflicts of interest relating to sustainability risks in their conflict of interest prevention policies.
Noncompliance with these requirements has been explicitly brought into the scope of the Dutch Authority for the Financial Markets ("AFM") powers to impose administrative penalty payments (article 10 Decree Administrative Penalties Financial Sector).
Article 23.0a Decree Prudential Rules requires UCITS fund managers to implement procedures to manage sustainability risk within the meaning of SFDR.
In addition, on its website, the AFM refers to article 8 SFDR. Pointing out that merely explaining the sustainability risks of investment products or of underlying investment policies is insufficient to label a product as ESG-positive.
In its annual program for 2023 the Dutch Authority for the Financial Markets ("AFM") indicates that in anticipation of EU policy, it will formulate its own approach to the supervision of sustainable investment products, by investigating sustainability aspects of investments, including the use of ESG ratings. The AFM explicitly specifies the prevention of greenwashing as one of its priorities: https://www.afm.nl/nl-nl/sector/actueel/2023/januari/afm-agenda-2023
The requirements applicable to UCITS fund managers and investment firms are enacted in further legislation to the Dutch Financial Supervision Act ("FSA"), particularly (i) the Decree Conduct Supervision; (ii) the Decree Prudential Rules, and (iii) the Decree Administrative Penalties Financial Services. In the field of consumer protection, the UCTD (and implementation in Dutch law) is particularly relevant and relied upon both by supervisory authorities and civil parties to address greenwashing.
In addition, general consumer protection laws and marketing laws, including general marketing/pre-contractual information requirements set out in the FSA (particularly articles 4:19 and 4:20 FSA) will apply and can be used in response to false sustainability claims. In particular, greenwashing could constitute an unfair commercial practice as defined in article 6:193a DCC et seq. (which is the implementation of the Unfair Commercial Practices Directive ("UCTD")). If so, the AFM can impose administrative sanctions, such as an administrative fine. Civil parties can also base a claim thereupon.
The relevant legal framework is primarily based on the EU legislative framework.
The legal framework is not enacted in specialized law or other regulations, only a definition of sustainability risk, which is considered to include risks relating to greenwashing. Moreover, the FSA and UCTD have open standards. Greenwashing can fall within the scope of these standards.
To our knowledge, no distinction has been made. However, given the recent focus on this topic, this still has to materialize in best practices and case law. No, only a definition of sustainability risk, which is considered to include risks relating to greenwashing. Moreover, the FSA and UCTD have open standards. Greenwashing can fall within the scope of these standards.
Not applicable.
Not applicable.
Decree Conduct Supervision: https://wetten.overheid.nl/BWBR0020421/2023-01-01
Decree Prudential Rules: https://wetten.overheid.nl/BWBR0020420/2022-09-08
Decree Administrative Penalties Financial Sector: https://wetten.overheid.nl/BWBR0026204/2023-01-01
The requirements applicable to UCITS fund managers and investment firms are enacted in further legislation to the Dutch Financial Supervision Act ("FSA"), particularly (i) the Decree Conduct Supervision; (ii) the Decree Prudential Rules, and (iii) the Decree Administrative Penalties financial services. In the field of consumer protection, the UCTD (and implementation in Dutch law) is particularly relevant and relied upon both by supervisory authorities and civil parties to address greenwashing.
In addition, general consumer protection laws and marketing laws, including general marketing/pre-contractual information requirements set out in the FSA (particularly articles 4.19 and 4.20 FSA) will apply and can be used in response to false sustainability claims. In particular, greenwashing could constitute an unfair commercial practice as defined in article 6.193a DCC et seq. (which is the implementation of the Unfair Commercial Practices Directive ("UCTD")). If so, the AFM can impose administrative sanctions, such as an administrative fine. Civil parties can also base a claim thereupon.
Decree Conduct Supervision: https://wetten.overheid.nl/BWBR0020421/2023-01-01
Decree Prudential Rules: https://wetten.overheid.nl/BWBR0020420/2022-09-08
Decree Administrative Penalties financial sector: https://wetten.overheid.nl/BWBR0026204/2023-01-01
AFM Trend Monitor: https://www.afm.nl/en/over-de-afm/verslaglegging/trendzicht
Dutch Civil Law: http://www.dutchcivillaw.com/civilcodebook066.htm