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Instances of Greenwashing by Financial Institutions Rise 70% in the Past Year, With European Banks Leading the Way, Report Shows

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Instances of greenwashing by banks and financial services companies globally have increased by 70% in the past year, according to a report by environmental, social, and governance (ESG) data firm RepRisk. The majority of these cases were found in European financial institutions, with many involving misleading claims about fossil fuels. The report recorded 148 instances of greenwashing in the banking and financial services industry between October 2022 and September 2023, compared to 86 during the previous 12 months.

While the European Banking Federation (EBF) acknowledged the rise in greenwashing claims, it suggested that this may be due to increased scrutiny of banks’ sustainability commitments rather than deliberate misrepresentations by lenders. The EBF spokesperson pointed out that banks play a crucial role in financing companies’ efforts to decarbonize, including those in high-emission industries. They also highlighted the lack of clarity surrounding the concept of transition finance, which can lead to unsubstantiated accusations of greenwashing.

Greenwashing refers to organizations making misleading sustainability-related claims to investors or consumers, often with the aim of enhancing their reputation and financial performance. Regulators are keen to tackle greenwashing to boost consumer and investor confidence and encourage more investment in sustainable initiatives. However, there is currently no legal definition of greenwashing.

RepRisk determines whether greenwashing has occurred by analyzing public sources of information and stakeholders, rather than relying solely on information published by companies. The firm considers greenwashing to have taken place when a company engages in misleading communication regarding the environment. Examples of greenwashing include companies overstating the impact of their environmental initiatives.

RepRisk’s report found that over 50% of the climate-specific greenwashing incidents mentioned fossil fuels or linked financial institutions to oil and gas companies. The data firm emphasized that these incidents were not isolated and that regulators are becoming increasingly aware of the scale of the problem.

The banking and financial services industry ranks second only to the oil and gas sector in terms of the number of greenwashing incidents, according to RepRisk. The report also revealed a broader rise in greenwashing, with one in every four climate-related ESG risk incidents now being linked to greenwashing, up from one in five the previous year. Furthermore, one in three companies involved in greenwashing was also found to be engaged in “social washing,” where firms present themselves positively while obscuring underlying social issues, such as human rights abuses or impacts on communities, to protect their reputation and financial performance.

UK Finance, which represents the banking and finance industry, stated that environmental and social responsibility are at the core of firms’ strategies. The organization is collaborating with regulators to improve transparency and implement ESG product labelling.

In June, European Union watchdogs proposed a “common high-level understanding” of greenwashing, uncovering “misleading claims” made by banks, insurers, and investment firms across the bloc regarding their sustainability credentials.

As the fight against climate change intensifies, addressing greenwashing is crucial to ensure that investments are directed towards genuinely sustainable initiatives. Regulators and industry stakeholders must work together to establish clear definitions and standards to combat greenwashing effectively.

More detail via The Star here… ( Image via The Star )

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