Weak sustainability categorisation can institutionalise greenwashing: EDHEC

As the European Union reforms its Sustainable Finance Disclosure Regulation (SFDR), the EDHEC Climate Institute has warned weak or inconsistent standards could institutionalise rather than mitigate misleading sustainability claims.

Under the changes, the EU is moving from a disclosure framework into a product categorisation regime.

"That change raises the stakes for the regulator. Once products are assigned to recognised sustainability categories, those categories perform much of the communicative work before any product-specific claim is made," the research note by EDHEC Climate Institute said.

"If the underlying standards are weak or internally inconsistent, the new framework may therefore institutionalise rather than mitigate misleading sustainability claims."