Banking and financial services sectors saw a 70% increase in the number of climate-related greenwashing incidents according to research from RepRisk, the environmental, social and governance (ESG) data science company.
More than half of these climate-specific greenwashing risk incidents either
mentioned fossil fuels or linked a financial institution to an oil and gas company
according to research from RepRisk published in October 2023.
Dr Philipp Aeby, CEO and Co-Founder of RepRisk, said in a statement: “Banks,
asset managers, investors, and other market participants need transparent data on
adverse impacts to assess a company’s true business conduct and mitigate green
and social washing risk in their portfolios and supply chains.”
The report gave the example of the US Securities and Exchange Commission
fining DWS Investment Management Americas, a subsidiary of Deutsche Bank,
$19m for misstatements regarding its ESG investment process.
The SEC’s order said DWS made materially misleading statements about its controls for
incorporating ESG factors into research and investment recommendations for ESG
integrated products, including certain actively managed mutual funds and
separately managed accounts.
RepRisk stated its methodology captures risk incidents that could materialise into
direct adverse impact on the environment through their operations, as well as those
that finance or invest in such companies and activities, for example companies that
finance oil and gas activities.
The report said that one quarter of total climate-related ESG risk incidents globally
were tied to greenwashing, an increase from one fifth in last year’s report. Over the
past year 1,850 companies were linked to a risk incident involving misleading
communication, with nearly two-thirds, 63%, associated with the issue for the first
time, with greenwashing risk exposure accelerating in Europe and North America.
“These incidents help demonstrate the growing scope and complexity of activities
that constitute greenwashing: extending from misleading consumers directly to
pledges, certifications, and commitments that muddy the waters and make it easier
for companies to benefit from setting future environmental goals without making
real changes today,” added RepRick.
It said, “However, there have been a number of positive developments in the form of new initiatives and frameworks that aim to lend transparency to corporate behavior and eradicate greenwashing, including new regulation introducing financial penalties for making misleading environmental claims.”
For example, the European Union’s taxonomy presents a common definition of
sustainability and metrics to assess alignment with the regulation, lending structure
and transparency to sustainability discourse.
The UK’s Financial Conduct Authority is also targeting greenwashing by evaluating ESG and sustainability claims made by asset managers according to RepRisk.Nearly one third, 31%, of publicly listed companies linked to greenwashing between September 2018 to September 2023 were also linked to social washing, according to the report.
The most common social washing issue in both the UK and US is human rights abuses and corporate complicity, which accounts for 26% and 25% of each nation’s incidents respectively.
Avleen Kaur, ESG Research Lead at RepRisk, said in the report: “The environment and society operate in an intertwined manner: environmental issues often have adverse impacts on communities while social issues can have environmental consequences.
Understanding the interconnectedness of these risks
is critical and requires enhanced assessment frameworks backed by robust
environmental and social datasets that provide a holistic assessment of a
company’s ESG performance.”
© Markets Media Europe 2023
