The practice of greenwashing by banks and financial services companies has increased by 70% in the past year, according to a report by ESG data firm RepRisk. The majority of instances occurred in European financial institutions, with much of the greenwashing focused on misleading claims about fossil fuels. RepRisk recorded a total of 148 cases globally in the 12-month period ending in September 2023, up from 86 cases in the previous year. Of these cases, 106 were attributed to European financial institutions. Greenwashing involves organizations making deceptive sustainability-related claims to consumers or investors in order to enhance their reputation and financial performance. Regulators are seeking to crack down on greenwashing to enhance consumer and investor confidence and drive more capital towards sustainable investments. However, there is currently no legal definition of greenwashing. RepRisk uses public sources and stakeholder analysis to identify instances of greenwashing, rather than relying solely on self-reported information from companies. The report highlighted that over 50% of climate-specific greenwashing incidents mentioned fossil fuels or linked financial institutions to oil and gas companies. These incidents are occurring on a wider scale, and regulators are increasingly aware of the problem, said RepRisk. The European Banking Federation stated that the rise in greenwashing allegations could be due to increased scrutiny of banks and their sustainability commitments, rather than deliberate misrepresentations by lenders. Banks play a crucial role in financing companies’ efforts to decarbonize, including those operating in high-emission industries. The EBF added that the lack of a clear definition for transition finance could lead to unfounded accusations of greenwashing. UK Finance, which represents the banking and finance sector, asserted that environmental and social responsibility is at the core of firms’ strategies and that it is working with regulators on transparency and ESG product labeling. In June, European Union watchdogs proposed a common understanding of greenwashing and highlighted the prevalence of “misleading claims” made by banks, insurers, and investment firms about their sustainability credentials. RepRisk also found that greenwashing incidents were on the rise in general, with one in four climate-related ESG risk incidents linked to greenwashing, up from one in five the previous year. Additionally, one in three companies involved in greenwashing was also implicated in “social washing,” whereby they present themselves positively while obscuring underlying social issues to protect their reputation and financial performance. The report cautioned that misleading communication in environmental and social matters not only hinders progress towards collective goals but also erodes trust with consumers and investors.
Banks behind 70% jump in greenwashing incidents in 2023 -report