Recently, the authorities of the United States of America began a probe into allegations that a German multinational investment bank and financial services company that had inaccurately overstated its Environment and Social banking product offerings.
A fund
subsidiary of the company is under high scrutiny over claims of its negligent
approach towards establishing its Environmental, Social and Governance (ESG)
investments criteria.
Authorities
including the United States Securities and Exchange Commission have begun the
investigations that had directly caused the German bank of losing 2.5% of its
market capitalisation.
This is not the
first occurrence of similar consequences. A few years ago, we have learned the
same for a case regarding emissions-cheating scandal of a motor vehicle
manufacturer, also from Germany. The motor vehicle company seemed to suffer
from pretty severe reputational impact on top of costing the company over 30
billion dollars in penalties, fines as well as lawsuits restitution and
settlement since 2015.
The whole
Financial Sector should be triggered with the investigations of the German
bank. The precedence of the investigations might also mean there is very likely
there may be more scrutiny on ESG-related data and disclosure expectations from
all banks.
Greenwashing
will mislead stakeholders on how ‘sustainable’ banks are in terms of its
practices, Environmental and Social products, or its governance.
Banks are very
much aware that ESG is on top of the agenda across the industry. Around the
globe, private and government sectors, investors and even regulators are gaming
up on their ESG ambitions.
The pressure to
be the ESG leaders are high for the banks to highlight to internal and external
stakeholders. In doing so, overstatement and exaggeration of ESG performance
and practices would likely to occur. This expose greenwashing risks towards the Banks.
Many companies
nowadays self-acknowledged that they are sustainable. These companies
should be cautious on these claims and ensure how they implement and how they
report their Sustainability progress really reflect to the actual practices. This can be
managed if the companies’ leadership are skilled and experienced on the
Sustainability integration status within the organisations. If not, leaders
of these companies are risking their jobs on the line, especially now there has
been increased scrutiny from regulators and authorities on the transparency of
companies’ Sustainability disclosures.
Apart from the
impact towards the leadership roles, companies will suffer loss of revenue and
investment value, loss of employees’ confidence and even reputational damage to
cause loss of social license to operate.
Conclusion
The solution to
this is companies must identify the current Sustainability knowledge and
practices gaps within their organisation and take the necessary actions to
address them in a way that are aligned with their business strategy.
It is
understandable that companies would leverage on Sustainability reporting as a
marketing tool. But it needs to be backed up with credibility. Companies are
encouraged to obtain external reviews and assurance on their Sustainability
data prior disclosing to the stakeholders.
This will ensure
all Sustainability-related practices, targets and achievements are reported
whether internally or externally, to be accurate and not misleading.
All views and opinions expressed on this site are by the
author and do not represent any particular entity or organisation
