Greenwashing
Definition
Greenwashing in the context of Sustainable Finance is any form of marketing or other communication / disclosure that uses deceptive means to persuade investors, regulators or the public that an organization's products, aims and policies or financial instruments are environment friendly. The term greenwashing was coined by New York environmentalist Jay Westervelt in a 1986 essay.
Greenwashing is a colloquial term used to describe claims made against a company for using sustainability advertising for products and services that are in fact not contributing to or even causing harm to the environment. Definitions vary; however, the term “greenwash” refers to environmental claims that could be considered false, unsubstantiated and/or unethical[1]
Causes
The rise of greenwashing coincides with increased awareness of sustainability challenges, paired with ineffective regulation and/or definition of what is "green". Greenwashing in the financial sector is a subset of more general greenwashing by corporate entities involved in the production of goods or services with a significant environment footprint.
Mechanisms
- Complex corporate structures and/or Financial Products that structurally hide "brown" activities
- Marketing that exploits known psychological blind spots of individuals (evocative language, suggestive imagery, mental associations etc.)
- In reporting / disclosures, missing or misleading factual information which may take various forms depending on context:
- Hidden Trade-offs. (See Also Do No Significant Harm Principle)
- Lack of Proof / Vagueness. Claims that cannot be substantiated and/or are poorly defined
- Exaggeration of factually correct claims
Examples
- ESG Funds falsely portraying themselves as adhering to an ESG Investing (or voting) strategy to attract investor money
- Incomplete or inapproriate use of corporate issue CO2 data
- Reduced exposure to opportunities / green solution and overweight of sectors with no impact on climate change
Mitigation
- provision of rigorous and standardised ESG information[2].
- Key rules on climate benchmarks input data (data quality disclosure and verification), including the accounting of scope 1, 2, and 3 GHG emissions
- Allocation constraints based on sector's potential impact on climate change [3]
See also
References
- ↑ WBCSD Definition, Sustainable Consumption Facts and Trends, From a Business Perspective, 2008
- ↑ Sustainable financial markets: translating changing risks and investor preferences into regulatory action, S.Maijoor, ESMA, 2020
- ↑ TEG final report on EU climate benchmarks and benchmark ESG disclosures, 2019
