Banks, insurers and investment firms across the European Union have made "misleading claims" about their sustainability credentials to investors, EU watchdogs said in progress reports to crack down on greenwashing.

EU banking, insurance and securities watchdogs were asked by the European Commission to look at greenwashing as investors put billions of euros into funds that tout their environmental, social and governance (ESG) attractions.

"The assessment confirmed that misleading claims may relate to all key aspects of the sustainability profile of a product or an entity such as ESG governance and resources," the European Securities and Markets Authority (ESMA) said in its report.

"Cherry-picking, omission, ambiguity, empty claims (including exaggeration), misleading use of ESG terminology such as naming and irrelevance, are seen as the most widespread misleading qualities," ESMA said.

The European Banking Authority (EBA) said analysis of greenwashing in the EU since 2012 shows a clear increase in the total number of potential cases across all sectors, including EU banks.

"The analysis of examples of greenwashing in the EU banking sector indicates that a bank can potentially engage in greenwashing in multiple ways, mostly at entity level, while greenwashing seems rather limited at product level except in the case of investment products," the EBA said.

The EU is already cracking down on greenwashing as it finalises mandatory ESG disclosures for companies. Asset managers already have to comply with ESG disclosure requirements.

"Greenwashing has a substantial impact on insurance and pension consumers," said the European Insurance and Occupational Pensions Authority (EIOPA).

EBA, ESMA and EIOPA will publish final reports on greenwashing in May 2024 and propose recommendations on possible changes to EU rules.