Sustainability and greenwashing in insurance – EIOPA publishes draft Opinion

Insurance consumers and pensions savers are increasingly interested in allocating their money to sustainability related products. So insurance and pensions providers are expanding their sustainable offerings and adapting their business models to be more sustainable.

While the growth of environmental, social, and governance (ESG) investing can contribute to the transition to a more sustainable economy, greenwashing risk exists. Greenwashing is the practice of misrepresenting sustainability-related features of investment products.

The issue has received renewed attention at European level, with EIOPA recently publishing a draft Opinion on sustainability claims and greenwashing. The Opinion is open for public consultation until 12 March 2024. It aims to foster a more effective and harmonized supervision of sustainability claims across Europe and limit the risk of greenwashing in the insurance and occupational pensions sectors.

EIOPA qualifies a wide range of statements, communications or actions related to sustainability as sustainability claims. These claims can be made at all stages of the life cycle of insurance and pensions, including the business model, product manufacturing, delivery and management. And they can be misleading in a number of ways, such as empty claims, vagueness or lack of clarity, inconsistency, misleading imagery or sound, irrelevance, outdated information, or falsehoods.

The draft opinion sets out four principles that should be observed when insurers and pension entities make sustainability claims. Examples of good and bad practices for each of the proposed principles are also included.

Principle 1 addresses the accuracy of sustainability claims, providing that they “should be accurate, precise, and consistent with the provider’s overall profile and business model, or the profile of its products.” According to this principle, providers are expected to present sustainability claims that are accurate, precise, and that reflect the sustainability features of the product in a fair manner. They should refrain from making overstatements or placing undue emphasis on particular aspects that might mislead consumers regarding the actual sustainability impact of the product. To ensure the accuracy of sustainability claims, all relevant information should be disclosed without omission.

Principle 2 provides that sustainability claims should be kept up to date, and any changes should be disclosed in a timely manner and with a clear rationale. Providers have to ensure their sustainability claims remain accurate with the product’s sustainability features and consumers’ sustainability preferences. Providers should review and monitor their strategies, policies, operations and products so possible changes in their sustainability profile are reflected in their sustainability claims.

Principle 3 states that sustainability claims should be substantiated with clear reasoning and facts. Sustainability claims must be adequately explained and supported by a clear rationale and verifiable, up-to-date facts. In line with Principle 2, any change to the sustainability profile of a product must be adequately substantiated.

According to Principle 4, sustainability claims and their substantiation should be accessible by the targeted stakeholders. Visibility, accessibility and understandability of sustainability claims and their substantiation are considered central for stakeholders’ understanding and decisions.

Sustainability claims and their substantiation should be tailored to the target audience. Clear and understandable language should be used. When it’s necessary to use more complex terms, such as in disclosures required by specific sustainability-related requirements, providers should accompany them with clear explanations.

Competent supervisory authorities are expected to monitor that providers adhere to the four principles set out by the draft Opinion. And where it turns out that a provider has made deceptive or misleading sustainability claims, competent authorities should undertake additional supervisory measures, including requesting appropriate remedial actions from the provider under the relevant law.

EIOPA will develop the impact assessment of the proposed Opinion based on the answers received in the context of the public consultation and will revise the Opinion accordingly. EIOPA will submit its final report to the European Commission by May 2024.

The EU sustainable finance regulatory framework on sustainability claims is still fragmentated and, as EIOPA notes, there are no specific requirements for the disclosure of sustainability features of non-life insurance products, although possible misleading claims may be addressed on the basis of the general fairness principle, including the general principle of being fair, clear and not misleading under the EU Directive on insurance distribution (IDD). The proposed principles may prove useful in providing guidance on how to identify misleading sustainability claims and monitor greenwashing in insurance and pensions, given that greenwashing remains a key issue that can create risks for investors and market integrity.

¹ See EIOPA, Consultation Paper on the Opinion on sustainability claims and greenwashing in the insurance and pensions sectors, 17 November 2023. The public consultation was opened on 12 December 2023.
² See Article 17 IDD.