There has been a 70% increase in deceptive environmental, social and governance practices involving greenwashing over the past year in the banking and financial services sectors globally, underlining a pressing need for greater corporate accountability, a research firm has stated. Nearly one-third of companies in all sectors found to be engaging in greenwashing were also reportedly involved in social washing.
That’s according to a released on Tuesday 3 October 2023 by Zurich-based RepRisk, a research and data science firm specialising in environmental, social and governance risk analytics for international corporations.
Philipp Aeby, CEO and co-founder of RepRisk, commented that the anticipation of gaining a competitive advantage through a sustainability image has perpetuated greenwashing. “A lack of accountability around a rapidly evolving landscape of corporate sustainability has helped keep this [green and social washing] door open for a long time,” said Aeby. He further stated that despite the increasing instances of greenwashing, many companies are facing backlash from the media, regulators and the public for making unfounded claims.
The research indicated a 70% increase in climate-related greenwashing incidents within the banking and financial services sectors in the last year. Over half of these incidents either mentioned fossil fuels or directly linked a financial institution to an oil and gas company.
In May 2023, the European Banking Authority utilised data from RepRisk to assess the prevalence of misleading communication in the banking sector within the EU. to the EBA, greenwashing has particularly accelerated in Europe and the Americas.
A quarter of global climate-related ESG incidents, across all corporate sectors, from September 2022 to September 2023 were associated with greenwashing, Reprisk stated. This marked an increase from one in five incidents identified in their July 2022 . Global companies increasingly used sustainability as a marketing strategy, without taking significant actions to substantiate their claims, the study said.
Greenwashing and social washing
RepRisk’s study also found that nearly one in three public companies linked to greenwashing are also implicated in social washing. Social washing occurs when companies falsely represent themselves as socially responsible to conceal underlying issues, stated RepRisk.
In terms of specific issues, RepRisk’s data pointed out that the most common social washing theme in both the UK and the US is human rights abuses and corporate complicity, accounting for 26% and 25% of incidents in the respective countries. However, diversity is not far behind; in the US, 18% of social washing incidents are connected to social or employment discrimination, compared to 11% in the UK.
Interestingly, the report found that 55% of global greenwashing risk incidents have a social component. In the US, 44% of companies linked to greenwashing also have a record of social washing, as opposed to 39% in the UK and 31% globally.
Evolving greenwashing tactics
The structure of greenwashing itself is evolving, the RepRisk report noted. It now includes not just misleading marketing and communication but also extends to dubious pledges, certifications and commitments. This makes it increasingly challenging for stakeholders to discern authentic actions from mere symbolic sustainability.
Aeby emphasised the need for transparent data to aid financial players in making informed decisions. He said, “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.”