Strategic initiatives to address greenwashing

Abstract

This article examines the December 2023 report by the International Organisation of Securities Commissions (IOSCO) titled “Supervisory Practices to Address Greenwashing,” alongside the European Union’s regulatory framework aimed at curbing greenwashing in sustainable finance disclosures. Greenwashing—defined as the misrepresentation of sustainability credentials to attract investors—poses significant threats to investor protection and market integrity, potentially leading to a loss of trust in financial providers. Despite efforts by IOSCO and the EU to improve transparency, the persistence of greenwashing is fueled by fragmented regulations, complex disclosure requirements, and the rapid growth of Environmental, Social, and Governance (ESG) investing. This article argues for greater international harmonization, proportionate regulation, and effective enforcement of oversight mechanisms to preserve the credibility of sustainable finance. It highlights the crucial role of global cooperation and national initiatives, specifically those by the Malta Financial Services Authority (MFSA), in addressing these challenges. Structured into four sections— covering the role of IOSCO in the ESG regulatory landscape, EU initiatives for sustainable finance, supervision and enforcement against greenwashing, and MFSA’s local efforts—the article provides a comprehensive review of current ESG investment practices and the ongoing struggle for enhanced transparency and accountability in financial markets.