France’s top financial regulator, Robert Ophele, has urged Europe to set common standards for environmental, social, and governance to prevent widespread “greenwashing”.

Ophele added that regulators needed to be subject to “a common doctrine on authorising funds whose investment policy is based on non-financial criteria” and that Brussels needs to speed up its efforts in finalising its rules until at least next year.

To prevent cases of consumers falling for alleged environmental-friendly products and to help investors make more informed decisions, the EU has proposed the creation of a  taxonomy classification system that defines environmentally sustainable investments.

Until now, banks and rating agencies are free to define for themselves what constitutes a “sustainable investment”. They are, however, free to capitalise on the growing demand for environmentally-friendly products.

The absence of common environmental, social and corporate governance (ESG rules) for social and governance investments at an EU level threatens the credibility of the European market and increases the risk of greenwashing – the practice of making an unsubstantiated or misleading claim about the environmental benefits of a product, service, technology or company practice – as it leaves the EU vulnerable to diverging practices that could deter responsible investments.

While many European countries are already adopting domestic standards based on market classifications, the lack of symmetry between those standards can severely hamper cross-border climate initiatives.

France is the only EU country that has significantly advanced its ESG rules. With the energy transition law that the country passed in 2016, asset owners have to report their management of climate-related risks and the integration of ESG into investment policies.