(Bloomberg) --

Denmark’s investment industry, which claims to be the world’s first to collectively commit to carbon reductions, will face more stringent guidance and procedures on sustainable finance this year as the risks of greenwashing grow.

Increased focus on carbon emissions and climate-related threats makes inflated and misleading environmental claims more likely, according to a statement by the Danish Financial Supervisory Authority. Those factors could undermine confidence in banks and other asset managers, the watchdog said as part of its twice-year assessment of risks to the financial industry.

The FSA also warned the pandemic continues to make the outlook uncertain particularly amid a recent sudden surge in Covid-19 cases. The Danish economy is at risk of overheating, with employment at higher levels now than before the pandemic. 

However, rising central bank rates could lead to a decline in asset prices, to which Danish households have become more vulnerable as house valuations have jumped and fund investing has climbed, according to the watchdog. It said it is following developments in asset prices closely, particularly the real estate market.

The authority is also focusing particular attention on ensuring banks and investment firms aren’t selling overly complex products to retail investors. The industry must have “a focus on the conflicts of interest that can arise and effectively manage them,” it said.

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