Greenwashing, Banking, and the Coming ESG Reckoning:

What Canada Must Learn from Europe

Abstract: The European Banking Authority’s 2024 report on greenwashing offers a critical wake-up call for financial institutions globally, highlighting a 21% year-over-year rise in misleading ESG claims — with nearly a fifth of all cases tied to the banking sector. As Canada prepares to implement Bill C-59, the EU’s experience underscores the urgent need for better data, stronger governance, and more credible sustainability disclosures. With groups like Toxics Finance pressuring corporate treasurers to move funds away from carbon-intensive banks, greenwashing is no longer just a reputational issue — it’s a commercial and legal risk. Canadian financial institutions must act now to strengthen ESG accountability or risk falling behind in the transition to a sustainable economy.

In May 2024, the European Banking Authority (EBA) released its long-awaited report on greenwashing monitoring and supervision, marking one of the most comprehensive assessments yet of how financial institutions are struggling to align ESG ambition with ESG accountability. Despite an expanding web of climate-related regulations in the EU, the report uncovered a troubling trend: greenwashing is on the rise, especially in the financial sector. For Canada, on the cusp of implementing its own climate disclosure framework via Bill C-59, the report is both a warning and a playbook.

The data speaks volumes. According to the EBA Report, the number of reported instances of misleading ESG-related communication increased by 21.2% between 2022 and 2023. Nearly one in five greenwashing cases under review across the EU relate directly to the financial sector. These are not just compliance failures — they are evidence of a growing credibility gap in sustainable finance.

At the heart of this credibility gap is data deficiency. The EBA found that many sustainability-linked financial products — such as green bonds or ESG-labeled loans — are launched with insufficient ex-ante due diligence and without clear post-issuance monitoring. Once these products are in market, it’s exceedingly difficult to unwind the sustainability claims retroactively, which creates reputational and even legal risk that lingers for years.

Take for example the EBA’s case study of a credit institution under litigation for falsely advertising a sustainability-themed investment fund. The fund was marketed as having a measurable positive environmental impact, yet investigators found the actual climate benefits to be unsubstantiated. It’s a textbook example of what the EBA now categorizes as “transition-washing” — claims of climate alignment not backed by a demonstrable departure from business-as-usual financing.

But the consequences are not only legal or reputational. They are commercial.

Groups like Toxics Finance, a coalition of climate-focused NGOs, are actively campaigning for Corporate Treasurers to move their deposits away from banks that continue to finance fossil fuels or carbon-intensive industries. These groups are gaining traction — and not just with activists. Large companies are increasingly concerned about the optics of keeping money in institutions that lag on climate performance. As the EBA report notes, client attrition is becoming a real risk for financial institutions that fail to substantiate their ESG claims.

So, what does all this mean for Canada?

Canada’s financial institutions are no strangers to ESG marketing. But like their EU counterparts, they face growing scrutiny — not only from regulators under Bill C-59, but from institutional investors, climate advocates, and even their own clients. And while Canada may not yet have a regulatory equivalent to the EU’s Corporate Sustainability Reporting Directive (CSRD), the pressure to walk the talk is intensifying.

What lessons should we draw?

1. Greenwashing is not a PR issue — it’s a risk management failure.
   Financial institutions must integrate greenwashing into their conduct, reputational, and operational risk frameworks. This isn’t just about optics — it’s about fiduciary responsibility.
2. Data, data, data.
   Sustainability-linked products must be supported by transparent, reliable, and independently verified data. Tools like PCAF, CDP, or SBTi offer globally recognized frameworks to track and report emissions at the portfolio level.
3. Governance matters.
   Banks need internal structures that prevent sustainability claims from being driven purely by marketing departments. That means cross-functional oversight, regular audits, and a willingness to challenge unsubstantiated claims.
4. Don’t label what you can’t defend.
   Once a loan, bond, or investment is labeled “green,” it becomes a long-term liability. Without verifiable metrics, these instruments can backfire — both reputationally and legally.
5. Prepare for regulatory convergence.
   Even if Canadian rules remain looser in the short term, financial institutions operating across borders will be subject to EU-like standards. Proactively aligning with international best practices isn’t just smart — it’s inevitable.

In short: Canada still has time — but not much. As Europe’s experience shows, ambition without rigor can do more harm than good. If Canada’s financial sector wants to remain a credible partner in the net-zero transition, it must move from ESG storytelling to ESG accountability.

The path forward is clear — now we just need the will to walk it.

Sign up for our 2025 Sustainable Finance Summit