This report explores the accuracy of environmental impact claims made by European retail investment funds. The analysis assessed the environmental claims made in marketing materials related to retail funds to identify whether such claims suggested a causality between an investor’s action of investing and an (direct or indirect) impact on the environment.

Results showed that 27% of all in-scope funds had associated environmental impact claims, but no such funds could substantiate their claims according to updated guidelines in the Unsolicited Commercial Practices Directive (UCPD) Guidance. Furthermore, many of the environmental impact claims were generic and lacked specificity. The findings suggest a significant potential legal risk.

The report proposes a range of short- and long-term recommendations to address the persistent problem of impactwashing. For example, it recommends integrating guidance on environmental impact claims into the regulatory framework to provide financial institutions with a clear, non-misleading communication approach. This can ensure that such institutions do not subject themselves to legal and reputational risks associated with misleading environmental impact claims. Moreover, it would go a long way towards ensuring that financial markets respond appropriately to impact-oriented retail investors.

The report also suggests the need for a framework to comprehensively address the greenwashing problem by amending Level 1 regulations in the Sustainable Finance Disclosure Regulation (SFDR). As some members of the European working group expressed, such changes could ensure that other short-term recommendations would be effective in seeking to compensate for conceptual problems in Level 1 regulations.

Overall, the report highlights a need for greater clarity and transparency in environmental claims made by retail investment funds, especially as it relates to the legal and regulatory framework. The recommendations put forward will help to improve categorisation of financial products and to regulate environmental impact claims in financial products distributed in the European Union.