The European Central Bank published Occasional Paper No 370 assessing whether the EU’s sustainability disclosure and due diligence rules for corporates and banks are effective in limiting greenwashing in corporate reporting. It concludes that the EU taxonomy, the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD), alongside environmental, social and governance (ESG) requirements in the banking package (Capital Requirements Directive VI and Capital Requirements Regulation III), form a reinforcing framework that can reduce misrepresentation by standardising disclosures and raising accountability, but that effectiveness depends on credible implementation, including enforcement and penalties. The paper highlights the EU taxonomy as a transparency tool and common language for defining environmentally sustainable activities, with large corporates required to report taxonomy-related indicators. It points to CSRD features intended to improve comparability and reliability, including mandatory European Sustainability Reporting Standards, a “double materiality” approach, value-chain reporting for “actual and potential” impacts, and external assurance, as well as climate transition plan disclosures with time-bound targets from 2030 to 2050 aligned with the European Climate Law. For due diligence, the CSDDD is presented as a key lever, with risk-based requirements across value chains, a role for third-party verifiers, harmonised administrative penalties including “naming and shaming” and fines up to 5% of net worldwide turnover, and civil compensation under national law in specified cases. For banks, ESG is embedded in prudential requirements, with transition plans addressed to supervisors, Pillar 3 climate disclosures requiring use of the International Energy Agency net-zero by 2050 scenario, and harmonised supervisory sanctions including periodic penalty payments of up to 5% of average daily net turnover. The assessment is based on the originally agreed legal texts and is stated to be without prejudice to the European Commission’s sustainability omnibus proposals published on 26 February 2025. It recommends that any future greenwashing-focused regulation should build on the existing disclosure framework, and that simplification efforts should preserve core anti-greenwashing features such as transition plans, verification and enforceable disclosure standards, while also addressing gaps such as banks’ facilitated emissions targets.
European Central Bank 2025-03-14
European Central Bank paper finds EU taxonomy and corporate sustainability disclosure rules can curb greenwashing if enforcement is credible
The European Central Bank's Occasional Paper No 370 assesses the EU’s sustainability disclosure and due diligence rules in curbing greenwashing. It concludes that the EU taxonomy, Corporate Sustainability Reporting Directive, and Corporate Sustainability Due Diligence Directive, along with ESG requirements in the banking package, establish a framework to reduce misrepresentation through standardized disclosures and increased accountability, contingent on credible implementation. The paper recommends future regulations enhance this framework by maintaining core anti-greenwashing features and addressing gaps like banks’ facilitated emissions targets.