Towards promoting sustainable finance disclosure: are ESMA’s hands tied? DRAFT

By Leo, Liza and Matteo

Climate change poses risks for virtually all sectors within global economies. These adverse effects extend themselves to the financial sector as well: global warming will negatively impact the stability of financial markets. Accordingly, the European Securities and Markets Authority (“ESMA“) has committed itself to contribute to a more sustainable financial framework. Amongst its most important priorities ESMA has identified the aim to tackle ‘greenwashing’, likewise the objective of the new Sustainable Finance Disclosure Regulation 2019/2088 (“SFDR”) by the European Commission. This blog post will set forth how the tasks conferred to ESMA under the SFDR will likely prove themselves to be insufficient. As the SFDR does not provide ESMA with any enforcement powers, the authorities’ hands appear to be tied when addressing misleading sustainability claims. For the time being, national competent authorities (“NCAs”) might be able to come to the rescue.


Financial greenwashing: how making ‘dirty’ look ‘clean’ is harming the environment

First coined by the ecologist Jay Westerveld in the 80’s, the term greenwashing refers to companies presenting their business activities as more sustainable than they actually are. As public concern about climate change has increased, the practice has gained more and more traction.


Although greenwashing initially originated in the consumer goods industry, the phenomenon has consolidated itself in the financial sector as well. The increased demand for sustainable products has led financial operators to capitalise on the ‘green’ inclinations of their investors. This has resulted in a growing number of companies making unsubstantiated claims about their products. As a result, investors have come to buy financial assets that only appear climate-friendly. In reality, they have (unknowingly) been abandoning their sustainable investment ideologies. Most importantly, greenwashing has started to hinder the financial sector in its pursuit to effectively address climate change.

 The EU Sustainable Finance Framework: information disclosure as a building block

The overall objective of a more sustainable financial framework was first enshrined in the Paris Agreement of 2016 and the UN 2030 Agenda for Sustainable Development. Both policy documents highlight the need for a more sustainable financial system and have led the European Union to increase its efforts to ‘green’ the financial system. Keen to contribute to climate change mitigation, the EU has accordingly recognized tackling greenwashing as one of its top priorities.


In a broader effort to increase the supply and demand of green capital, the European Commission launched the 2018 Action Plan “Financing Sustainable Growth”. The plan consists of three building blocks: (1) a taxonomy of sustainable activities, (2) disclosure requirements for financial and non-financial companies and (3) investment tools such as benchmarks, standards and labels.

Most relevant in the context of greenwashing is the second building block. This element of the plan seeks to provide investors with the necessary information to make informed and sustainable decisions on the market. Disclosure requirements relate to both the environmental and societal impact of a firm, as well as to the business and financial risks it faces due to sustainability exposures. Hence, the European framework requires financial operators not only to consider the impact that sustainability issues have on their own business, but also on the environment in general.

Source: Strategy for Financing the Transition to a Sustainable Economy

 Cracking down on greenwashing: ESMA and the Sustainable Finance Disclosure Regulation

A key contributor to the Commission’s second building block has been the Sustainable Finance Disclosure Regulation 2019/2088. The provisions of the SFDR entered into force in 2021 and impose extensive sustainability disclosure requirements on European banks, investment funds, insurers and asset managers. For this purpose, the SFDR defines various categories of financial products. These categories vary from initiatives without any climate-friendly considerations, to those with specified environmental objectives. Overall, the regulation aims to increase transparency, maintain a level playing field within the EU and address the issue of greenwashing.


The SFDR highlights an important task for ESMA. As the authority is one of the three European Supervisory Authorities (“ESAs”), it operates within the ESA Joint Committee. This Joint Committee received a mandate to review and revise the Regulatory Technical Standards (“RTS”) under the SFDR. In February 2021, the ESAs accordingly presented their final report on draft RTS regarding the content, methodologies and presentation of sustainability-related disclosures. Currently, the Joint Committee is still working on finalizing its draft RTS. However, the ESAs informed the Commission that they will issue a Final Report under their mandate before November 2023.


The road ahead: do ESMA’s powers suffice?

At present, the SFDR does not provide ESMA with tools to enforce against the risk of greenwashing. As the supervision and enforcement of the SFDR is a task for NCAs, ESMA is bound by a shared-enforcement system. Whilst the authority can establish RTS under the SFDR, only NCAs can sanction financial operators in case of non-compliance. This could lead to an ineffective approach towards greenwashing when NCAs don’t equally enforce against this misconduct. Consequently, it has been argued that ESMA should be appointed as the sole supervisor and enforcer of the SFDR. With one central supervisor, chances of achieving regulatory harmonization could increase. However, central supervision would still face some legal challenges under the non-delegation doctrine.

In its 2014 New Delegation Doctrine the Court of Justice of the European Union provided for the possibility to establish EU-agencies that can take legally-binding decisions. However, the content of such decisions needs to be specific. Moreover, precise conditions and criteria must limit the authorities’ discretion and the legally-binding measures must allow for judicial review. Compared to the Meroni Doctrine, the New Delegation Doctrine seems to incentivise the “agentification” process within the EU. Still, ESMA cannot be delegated full discretionary powers to take legally-binding measures in order to address greenwashing.


Regardless of future developments, it is advisable that NCAs cooperate. Sharing best practices could contribute to a more uniform approach when addressing greenwashing practices. As it currently stands, ESMA’s ‘enforcing’ hands seem to be tied.  For now, NCAs could come to the rescue.

Synthesis: “From better enforcement to better lawmaking?”

On Friday 17 March RENFORCE organized a symposium with the title: From better enforcement to better lawmaking. Speakers included Prof. Gert Jan Veerman (Maastricht University), Dr. Mira Scholten (Utrecht University),  Mr. Rob van de Westelaken (European Parliament), and ms. Anne-Jel Hoelen (Netherlands Authority for Consumers and Markets). The symposium sought to bridge not only lawmaking and enforcement but equally the EU and national levels; academia and practice as well as the political/technocratic divide.

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John Vervaele’s farewell speech and legacy in the field of enforcement of EU laws

On March 10, 2023, prof. John Vervaele has given his farewell speech ‘Towards a European Reassessment of Punitive Enforcement’ at the Aula of Utrecht University. In this blog post, I am discussing the main ideas of his speech and career – Europeanisation of EU law enforcement – and, in this way, I aim at giving my personal gratitude to prof. Vervaele. It has been a great honour and pleasure of working with you, John!


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The legal and practical aspects of the independence of National Regulatory Authorities (NRAs) in the electronic communications sector

In 2022, dr. Olga Batura, dr. Malgorzata Kozak and dr. Mira Scholten conducted an investigation into the legal and practical aspects of the independence of National Regulatory Authorities (NRAs) in the electronic communications sector commissioned by the Body of European Regulators of Electronic Communications (BEREC). The research combined elements of the ‘law in books’ and ‘law in action’ approaches and consisted of a literature review, comparative legal analysis, expert interviews, a survey of BEREC members, a workshop with NRA experts (including case studies) and focused interviews with selected NRAs. This blog post gives a short overview of the mentioned investigation.

The study argues that full independence should be understood as the unity of practices conducive to de jure and de facto independence, meaning that the NRA is properly established, empowered, resourced, effectively functioning and accountable. The NRA’s independence decreases with each bad practice, meaning that the presence of even one bad practice in any dimension of independence implies that the NRA lacks independence to some degree. A culture of independence needs to be nurtured within NRAs and the government as a whole to support the practice and proper application of EU independence standards.

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Trading in Energy Derivatives: who’s watching?

On 20 January 2023, Liebrich Hiemstra defended her PhD dissertation which shows the financial side of the energy sector: the trade in energy derivatives and how such trading is supervised by EU and national regulatory authorities. One of the main findings is that the supervision in this sector is too opaque and that the effectiveness of the legal remedies available to market players is questionable.  

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Enforcement Challenges in Multi-Level Regulatory Systems, Revealing Weaknesses and Offering Solutions

On December 15 and 16, the University of Luxembourg commemorated the work of the Doctoral Training Unit on Enforcement in Multi-Level Regulatory Systems (DTU REMS), which culminated with a closing conference and the unveiling of their published joint work, Enforcement Challenges in Multi-Level Regulatory Systems, Revealing Weaknesses and Offering Solutions (Nomos). The conference began with a presentation of the contributing PhD graduates and their supervisors. Afterwards, Dean Katalin Ligeti, coordinator of the program, was joined by the Program Manager of the Luxembourg National Research Fund (FNR), Marie-Claude Marx, and the Vice-Rector for Research of the University of Luxembourg, Professor Jens Kreisel, to share remarks on the project.

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Differences in substantive application of Article 102 TFEU and the DMA concretized: ‘Privacy policy tying’ under Article 102 TFEU or the opt-in rule for data combination and cross use in article 5 (2) of the DMA

Disclaimer: All opinions in this blog reflect the views of the author, not of the Dutch DPA.

In our digital markets, there are more and more concerns that big tech firms use their dominant position to conduct practices that could potentially be harmful to consumers and competitors. One of these practices is to present the consumer with a take-it-or-leave-it option before he or she is allowed to use a service: if you do not consent to the fact that the firm can combine and cross-use your personal data from the service with data from other services, you will not be allowed to use the service. Where firms use their dominant position to make such practices possible and when this makes the position of these firms even stronger so the market ‘tips’, the regulator could be inclined to prohibit the practice on the basis of competition law or other forms of market regulation. In the following, I introduce this practice (I). Then, I explain that the mainstream way of approaching the aforementioned practice under Article 102 TFEU has raised critique (II). Then I show how this critique could be taken away by another way of applying Article 102 TFEU, namely under the theory of harm of ‘privacy-policy tying’(III). Next, I explain that article 5 (2) of the DMA, which directly deals with the practice at hand, shows many similarities with the criticized approach of Article 102 TFEU (IV). Finally, I argue that the application of this article does not take away the critique that has been raised, which could potentially have negative consequences (V).  

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Round-up of publications focused on Enforcement at the EU Commission this month

This month, the editors of the blog issue a ‘news type’ of blog post. We would like to bring the readers’ attention to publications related to the central theme of enforcement that the EU Commission has made in the last month.

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EU law enforcement of the right to family reunification for unaccompanied minors fleeing conflict

The recent events in Ukraine brought to light once again the difficulties faced by refugees at the beginning and during flight and resettlement. One of the main topics that are creating tension and increased solidarity is the fate and safety of the children separated from their families and parents. In this context, the first-time activation of the (TPD) for Ukrainian refugees sets an unprecedented step forward for the right of unaccompanied minors fleeing war and serious harm to family reunification. This bold political choice also draws attention to the urgent need for revision of the current legislation regulating family reunification for international refugees or beneficiaries of subsidiary protection.

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Eurojust to the rescue! The rising principle of legality in parallel cross-border investigations and prosecutions

By Sonia, Shermane and Sandy

Positive conflicts of jurisdiction occur when two or more member states (MS) posses the right to investigate and prosecute the same alleged criminal offence. Within the context of the European Union, Eurojust aims to provide coordination among MSs when a conflict of jurisdiction emerges. In 2003 (updated in 2016), Eurojust issued guidelines to aid decision-making in the MS with the most competent jurisdiction. In 2005, the Commission launched the Green Paper on conflicts of jurisdiction and the principle of ne bis in idem in criminal proceedings. The Framework Decision 2009/948/JHA on prevention and settlement of disputes of exercise of jurisdiction in criminal proceedings appears to be the one legal instrument that covers this area, but what about the principle of legality? Neither the guidelines nor the Green Paper tackles the derogation of this principle when an individual is subject to multiple jurisdictions, resulting from parallel cross-border prosecutions. This post shows the limited role of the legality principle in parallel cross-border investigations and elaborates on the solutions that have been proposed so far. Finally, it looks at the most feasible way Eurojust could overcome the current shortcomings.

What is the role of the legality principle in parallel cross-border investigations?

Parallel proceedings are where two or more states claim criminal jurisdiction of the same suspicious criminal conduct. Parallel proceedings can involve parallel investigations or parallel prosecutions, or both. In its communication on a new EU framework to strengthen the rule of law, the Commission included the principle of legality as one of the main principles expressing the core meaning of the rule of law. Ever since, the concept has been further developed. The relevance of the principle is reiterated in the Commissions 2019 communication as an essential element of the rule of law. The principle of legality has also been described as an “umbrella” principle, as it covers multiple other principles. However, this post focuses on the foreseeability of laws (legal certainty), which is understood as a requirement of predictability and accessibility of the law so that a subject of law can reasonably foresee the consequences of its actions. This is ascertained by sufficiently precise formulation of laws.

In case a crime affects different states, parallel proceedings may emerge, as, in principle, each state possesses jurisdiction (see infographic). Jurisdiction may arise from jurisdiction ratione loci or jurisdiction ratione personae. The latter includes whether active personality or passive personality jurisdiction. The individual may be the subject of parallel proceedings, each following different substantive and procedural rules. In addition, it could also be possible that no Member States want to investigate or prosecute, which would entail a negative conflict of jurisdiction

For instance, in a case of an assault taking place in Belgium. Where the perpetrator is a French national residing in Belgium, the victim is a Dutch national having a permanent habitual residence in Germany. Consequently, several states may possess jurisdiction. Conversely, Belgium may start proceedings based on jurisdiction ratione loci. On the other hand, the Netherlands may start parallel proceedings based on jurisdiction ratione personae, more precisely by the passive personality principle. Finally, France possesses jurisdiction ratione personae, specifically passive personality jurisdiction.

Consequently, the violation of the ne bis in idem principle is at risk, which refers to the notion that a person shall not be punished multiple times or be subject to various proceedings for the same conduct. Furthermore, arbitrariness may appear, ultimately resulting in forum shopping. Forum shopping in this context is understood as when the Member States choose a particular jurisdiction for the case to be heard because it is more likely to provide a favourable outcome. For example, where the conduct is more severely punished.

Eurojust to the rescue? The Competence of Eurojust to enforce the principle of legality in parallel investigations.

Art. 4(1) c and 4(2)b of Regulation (EU) 2018/1727 states that Eurojust is competent to assist the competent authorities of the Member States (MS) in ensuring the best possible coordination of investigations and prosecutions. Moreover, Eurojust may issue a written opinion to indicate that the MS is most competent to prosecute. Hence, Eurojust is more suited to tackle this issue both in the early stages of the investigation through assistance and cooperation and ultimately recommending competent jurisdiction. For instance, there is a growing number of parallel proceedings detected by Eurojust via Article 13(7)(a), from 10 notifications received by Eurojust to 49 in 2017. This increase shows that dialogue and mutual trust are the main elements that Member States value to find a standard solution. Thanks to Eurojust, relevant details can be brought to the attention of the competent national authorities, which may decide to open an investigation. In complex cases, Eurojust proposes the creation of a JIT, which facilitates and coordinates further studies.

In 2017, the European Law Institute published a Draft Legislative Proposals aiming to prevent parallel proceedings and resolve conflicts of jurisdiction, thereby ensuring the protection of the above-mentioned ne bis in idem principle. The focus was drawn on guaranteeing legal certainty and foreseeability to achieve this. The reports include substantive legality as a relevant aspect of Article 47 CFR, which provides, among other things, that “everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal previously established by law. We consider that the last part “concerning the tribunal established by law” renders problematic in parallel investigations and prosecutions because the jurisdiction in which a suspect is to be prosecuted is unclear and may remain undecided for an unacceptably period.  Moreover, it enshrines the principles of legality and proportionality. Some legal scholars, such as Luchtman, already predicted in many articles this shortcoming. He relates the substantive legality principle, foreseeability and choice of forum. He argues that insofar as the specific jurisdiction determines the applicability of different national substantive provisions, a new framework to provide for that choice would support the foreseeability of the law for the individual.

Alternative solutions

The European Law Institute distinguishes three alternative approaches that would provide the principle of legality the granted role in the CFR in parallel cross-border investigations.

  1. The so-called horizontal mechanism, in which the conflicts of jurisdiction and parallel investigations are solved via consultation between MS, shall eventuate in an agreement.
  2. The vertical mechanism is characterised by a binding supranational decision (issued by Eurojust) in cases where coordination between the national criminal justice authorities has failed.
  3. The model for the allocation of criminal jurisdiction in the AFSJ aims to prevent the emergence of conflict of jurisdictions by establishing uniform European rules on the allocation of the exercise of criminal jurisdiction in the AFSJ.

From the three choices, we consider the second one the most suitable. On the one hand, the horizontal mechanism, the current practice between MS, has proven non-efficient. This is because there is no uniform procedure that would allow the individual to foresee the consequences of their conduct or which law, they are subject to.  On the other hand, a complete regulatory mechanism that would force MS to accept which jurisdiction is better suited would render it too complex to enforce. This complexity derives from the fact that there are too many factors to assess, which have to be considered in all three models to decide which jurisdiction is more suitable. For example, the nationality and current location of the suspect, the place where most evidence is located, the interest and protection of victims and witnesses etc. Depending on the specific circumstances of the case at hand, these factors make it challenging to establish that one is more important than the other; therefore, each case needs a particular assessment.

So, what can be done now?

Currently, the legal certainty problems that derive from parallel investigations should be acknowledged, taking Eurojust as an example. Eurojust tackles in its reports the importance of detecting parallel investigations at the earliest possible stage.

There is the need to acknowledge more significant the legal certainty problems that derive from parallel investigations, and Eurojust should be an example. Currently, Eurojust considers that parallel proceedings can be beneficial in combating crime if they are performed in a coordinated manner. They assess questions regarding parallel investigations in their plenary meetings and tackle the issue in the yearly coordination meetings. Indeed, this is a positive attempt for these issues to be addressed in coordination meetings and strategic seminars solely to tackle parallel investigations and their consequences for individuals as it increases understanding regarding the issues related to legality that may arise in parallel investigations and prosecutions. The gentle mandate of Eurojust to support cooperation and coordination between the Member States is without doubt, enhanced in such a way even without the use of punitive sanctions to achieve compliance. To conclude, policy documents as guidelines on coordinated and safeguarded parallel investigations would significantly benefit Eurojust.