Banks and financial groups were increasingly caught out in 'greenwashing' incidents over the last year, new research has found, as the trend continued to grow across the corporate world.
While most greenwashing incidents were recorded from the oil and gas sector, the biggest growth was seen in the banking and financial services sector which recorded a 70% increase in the number of climate-related greenwashing incidents in the past 12 months.
There were 148 cases from the banking and financial services industry globally in the 12 months to the end of September, according to environmental, social and governance (ESG) data specialist RepRisk, up from 86 during the previous 12 months.
Earlier this year, for example, banks including Barclays, HSBC, Citigroup and JPMorgan were found to be continuing to pump billions into new fossil fuel projects despite their own climate pledges; Lloyds was berated at its annual shareholder meeting for increasing funding for fossil fuels; and Barclays and HSBC were again criticised for continuing to profit from providing finance for new oil, gas and coal projects.
"Over 50% of these climate-specific greenwashing risk incidents either mentioned fossil fuels or linked a financial institution to an oil and gas company. These incidents are not happening in isolation and regulators are increasingly aware of the scale of the problem," RepRisk said.
Last month, the UK Financial Conduct Authority challenged banks to further tackle ‘greenwashing’ across their organisations with proposed new rules for the end of the year. In June it wrote to the sector to admonish them about “greenwashing” and “conflicts of interest” in the sustainable loans market.
New rules and standards aim to bring greater transparency but may also lead to additional securities litigation, according to some.
Also in September, the European Parliament and Council provisionally agreed to ban certain ESG claims such as “environmentally friendly” as part of an anti-greenwashing package, meaning only approved certification schemes or those established by public authorities will be allowed.
“The expectation of competitive advantage derived from an image of sustainability has opened the door to green and social washing," said Dr. Philipp Aeby, CEO of RepRisk.
“A lack of accountability around a rapidly evolving landscape of corporate sustainability has helped keep this door open for a long time. Despite this, in recent years symbolic sustainability has backfired for many as the media, public, and regulators criticize unfounded claims.
“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.”
Almost one in three public companies linked to greenwashing were also associated with 'social washing', the research found.
An instance of greenwashing is caught by RepRisk when either a company engages in misleading communication about its ESG actions or there is an environmental issue such as local pollution or impacts on landscapes, ecosystems, and biodiversity, which is either found out to be overstating its impact, criticised, or otherwise subject to traditional and/or social media coverage of actions in contrast to its climate commitments.
Social washing is defined as a contradiction between a company’s positive image and a social issue in their business conduct, with violations being findings of human rights abuse and/or corporate complicity, child labor, or impacts on communities.