Newsletter
Guidelines for Preventing Greenwashing by Financial Institutions" announced by the Financial Supervisory Commission
In order to prevent financial institutions from misleading judgments and decisions of consumers, investors or other market participants by conducting any activities that may involve "greenwashing", the Financial Supervisory Commission (the "FSC") announced the "Guideline for Preventing Greenwashing by Financial Institutions" (the "Greenwashing Prevention Guidelines" or "Guidelines") in May 2024. The Greenwashing Prevention Guidelines stipulate five principles for financial institutions (including financial holding companies, banks, securities firms, futures firms, securities investment trust enterprises, securities investment consulting enterprises, insurance companies, and bills finance companies) to implement for prevention of greenwashing. Please see below a summary of certain important contents of the Guidelines:
I. The statement issued by the financial institutions on sustainability (the "Statement") should be true and correct, supported by evidence that is sufficient, relevant and publicly verifiable when it is made, and should be reviewed and updated regularly.
II. The Statement should be direct and easy to understand.
III. The content of the Statement should be complete, that is, it should include all information that is related to its sustainability features. The Statement should not simply be symbolic or selective disclosure. It should not omit or hide any important information. If the Statement is only applicable under certain conditions, the restrictions should also be clearly stated. Meanwhile, it is not appropriate to make a statement on sustainability based solely on carbon offsets.
IV. When the Statement involves comparison, the basis of the comparison should be fair and the comparison method should be stated. If an institution or its products and services only meet the minimum standards of relevant regulations, it should not mislead consumers to consider its sustainability features are better than those of its peers while making comparison. Further, financial institutions should also monitor their relevant marketing activities in a timely manner.
V. The Statement should ensure compliance with sustainability-related standards and regulations, including ensuring the compliance regarding information disclosure of sustainable financial products and the decision-making process of investment. If financial products have sustainability features only during a specific period of time, the fact should be clearly stated within the Statement; if the Statement reference external sustainability data, analysis and ratings, the financial institution should conduct corresponding due diligence in advance. According to relevant news reports, the FSC has stated that the aforementioned "due diligence", unlike the due diligence conducted for mergers and acquisitions, refers to understanding of the methodology of the use of external data or ratings.
The Guidelines also state that the nature of such Guidelines is administrative guidance, and statements or disclosures of financial institutions related to sustainability features should still comply with all relevant laws and regulations.
Further, in order to make it easier for financial institutions to understand the above principles, the FSC also refers to the practices of the UK Financial Conduct Authority (FCA) and provides certain "examples of greenwashing" in the Guidelines. Please see below some of such examples:
I. "Statements inconsistent with facts": A company's promotional documents state that all funds raised from its "green bonds" will be used to support green industry investment and financing projects. However, in fact, the borrowers also include companies that make products with high carbon emissions.
II. "Statements hiding important information": A company promotes itself as a "green enterprise" and states that it provides financing plans for global customers to transit to net-zero carbon emissions; however, the company has not clarified that it has been continuing lending funds to polluting industry simultaneously and the company's carbon reduction is actually based on its carbon offsets.
Lee and Li dedicates sustained attention to the development of financial institutions under the trends in sustainable finance. If you have any questions about the content or issues relating to the Greenwashing Prevention Guidelines, please do not hesitate to contact us.