Why We Need to Avoid Greenwashing

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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