By Huw Jones
LONDON (Reuters) - French and Dutch securities regulators called on Tuesday for European Union rules to prevent "greenwashing" or inaccurate claims that investments are sustainable and climate-friendly.
Several firms provide ratings on a company's environmental, social and governance (ESG) risks that asset managers use to make "green" investment decisions.
The European Commission wants to boost sustainable investments and is due to publish an action plan in 2021.
The Dutch and French regulators made their joint call in a bid to persuade the EU executive to include proposals for rules for ESG raters in its package
"While their influence is expected to grow considerably, providers of sustainability-related services remain largely unregulated," France's AMF and its Dutch counterpart AFM said.
The EU's European Securities and Markets Authority (ESMA) should become the regulator for ESG ratings firms, they added.
"The proposed framework is aimed at preventing misallocation of investments, greenwashing, and ensuring investor protection."
ESMA's chair Steven Maijoor has said that supervision of ESG ratings was "far from optimal" due to a lack of clarity on the methodologies that underpin ratings.
Sustainable finance is growing rapidly, and the EU is keen to increase "green" investments to help its economy recover from the impact of the COVID-19 pandemic.
Any decision to propose EU rules to regulate ESG ratings would be up to its executive body, the European Commission.
The bloc is introducing rules for asset managers on ESG disclosures in March, along with a "taxonomy" to provide clear legal definitions on sustainability that will make greenwashing far harder, a European regulatory official said.
"It requires financial market participants to report on sustainability factors and impact, which pretty much automatically pushes them to dependence on these ratings and data," the official said.