CSSF Alerts Investors To Greenwashing Risks In Green Finance

Surge in Sustainable Investment Demand

As the market for sustainable financial products is fuelled by growing interest in environmentally friendly and socially responsible investments the risk of greenwashing is obviously increasing as well. With the aim of protecting financial consumers, the Luxembourg regulator Commission de Surveillance du Secteur Financier (CSSF) published a press release on 15 November 2024 with respect to the risk of greenwashing in the financial sector.

Greenwashing can deceive investors into thinking the funds they are investing are supporting green initiatives when this may not be the case. In this respect, the CSSF stresses the need for caution since not all financial products labelled as green truly are. The CSSF therefore urges the public to stay vigilant, question promises, and seek transparency in financial products and to not blindly rely on labels and promises.

CSSF's Recommendations for Assessing Green Financial Products

The CSSF offers several recommendations to help investors critically evaluate the reliability of green financial products or sustainability claims of issuers:

1. Examine Product Names Carefully: The use of terms like "ESG", "green," or "sustainable" in a product name does not automatically mean that this product actually pursues such characteristics. It is thus important to thoroughly review the sustainability-related information in the product documentation.
2. Be Wary of General Claims: Broad commitments without specific evidence are often unreliable. Verify that the issuer or product has concrete methods to achieve its sustainability goals. These methods must be described in the issuer's sustainability reports.
3. Check for Independently Certified Labels: Be cautious as some issuers may create their own certifications. Therefore, check the credibility of these certifications and ensure they are validated by independent organizations.
4. Diversify Investments: Diversifying the portfolio helps reduce the risk of relying on a limited number of issuers or being concentrated on single sectors, thus providing better protection against greenwashing.
5. Seek Expert Advice: Consult advisers who specialize in sustainable investing. They can help you define your sustainability goals and identify genuine green investment opportunities.

New Letzfin Platform for Sustainable Investing

Furthermore, the CSSF has launched a new section on its platform www.letzfin.lu designed to provide valuable resources and information to help investors navigate the complex world of sustainable investing. Key features include:

1. More detailed explanations of what the CSSF considers as greenwashing:  

Generally speaking, greenwashing refers to any practice that involves making statements, claims, actions, or communications about sustainability that do not clearly and credibly reflect the actual sustainability profile of a company, a financial product, or a financial service. 

The CSSF also provides helpful explanations of different forms of greenwashing, such as greenhushing, greenwishing, greenblushing, greenlighting, greenrinsing, greenlabelling, greencrowding and greenshifting.

2. Educational materials and explanations on different types of investments and how to address key questions concerning greenwashing, including FAQs, interactive factsheets and educational videos.

Further information in respect of greenwashing can be found in ESMA's Progress Report on Greenwashing.

For more details on the platform, visit www.letzfin.lu/greenwashing.

If you have more questions on sustainable investments or would like to structure and launch ESG products please feel free to reach out to our ESG experts in the Ashurst Luxembourg funds team: