Fund industry groups have urged European Union (EU) regulators not to define greenwashing in law, citing concerns that it could be counterproductive and complicate a sector in “constant flux”.

Fund managers including The European Fund and Asset Management Association (EFAMA) and the Investment Company Institute (ICI) have submitted responses to the European Securities and Markets Authority’s (ESMA) call for evidence on greenwashing.

In its submission, EFAMA stated that it is crucial for all financial market participants to have a “unified understanding” of greenwashing as well as harmonized supervisory action to address the risks, warning that without this, investor confidence in sustainable finance could be severely undermined, threatening efforts to transition towards a sustainable economy.

EFAMA added that instead of generating a separate legal definition of greenwashing, it strongly encourages ESMA to “take into account the existing definitions based on the EU frameworks, and international organizations, and focus on practices from the different stakeholders instead of increasing complexity by introducing a whole new definition detached from the legislative framework already in place.”

This opinion was echoed by ICI, which stated that “rather than seeking to define ‘greenwashing’ and thereby creating a new legal term, we recommend instead that EU authorities describe the conduct or circumstances of concern.” The institute warned that “seeking to adopt a general definition of greenwashing or enshrine it in legislation would be counterproductive,” in its response, seen by Reuters.

All feedback will feed into the European Supervisory Authorities (ESA) findings with a progress report due to be issued in May.