Greenwashing potential unveiled: exploiting flexibility within the EU climate benchmark regulation

This is the first study that quantitatively reveals the greenwashing potential within the EU Climate Benchmark Regulation for Climate Transition (CTB) and Paris-aligned (PAB) Benchmarks. Using an optimization model, we identify significant greenwashing potentials by exploiting the flexibility of the current regulation. We show that portfolios notably invested in unsustainable assets can still meet the regulation's minimum standards allowing them to be misleadingly promoted as "climate-friendly". In response, we suggest a variety of adjustments to reduce this greenwashing potential.