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This month, the asset management arm of Deutsche Bank, DWS, came under investigation for allegations of greenwashing. German authorities were responding to reports that ESG factors were not such a key part of investment decision-making, as it was purported to be. At almost the same time, the U.S. Securities and Exchange Commission, which recently released a proposed directive targeting greenwashing, launched a probe into Goldman Sachs for the same issue. Earlier in the year, Bank of New York Mellon was fined $1 million for misleading investors about its ESG investing approach. We can be sure that regulators all over the world are taking greenwashing very seriously.
So, what constitutes greenwashing? Greenwashing is when something creates a false or misleading impression. A false ESG claim would be if a company reports that there were zero incidents of workplace injuries, but in fact there were a few that went unreported. Now if the same company said that there were zero reported incidents, then we cannot dispute that claim, although it is misleading by way of omitting other information.
Be specific with the terms you use. Carbon neutral is not the same as climate positive, and net zero does not equal zero emissions. For example, if an investment fund is labelled as ‘ESG’ or ‘sustainable’, investors and regulators will be looking for other keywords such as ‘clean energy’, ‘gender lens’, ‘low carbon’, ‘SRI’, or ‘green sukuk’ in order to understand how exactly the product is sustainable. Some of these terms such as socially responsible investments (SRI) and green sukuk come with their own qualifying criteria, so use of these terms must be justified by meeting the criteria. Vague use of broad terms like ‘green’, and ‘sustainable’ is a red flag. It’s easy to get away with using them as a catch-all phrase, and this is where you could come very close to the danger of greenwashing. Such claims must always be substantiated by proof that what you are doing is in fact sustainable.
Effective, clear, and transparent communication is extremely important to avoid greenwashing. Be very careful about the way you communicate your ESG efforts, especially when there is an element of marketing involved. An example of skewed marketing is when a label states ‘made from 90% recycled material’ but it is not clear if this refers to the label itself or the attached product.
In most cases, greenwashing is called for when there is a founded lack of tangible strategies to support a claim. Organizing, collecting, and leveraging physical data (information based on actual consumption facts and not expenses) will help transition your old school CSR communications strategy to an actionable and transparent one. This means selected thought out ESG metrics, that are not only harmonized with reporting frameworks and standards but that also match your company’s unique approach.
Reporting on sustainability issues does not mean manipulating data in order to be all positive. It rather aims to demonstrate your journey, efforts, and overall vision as a company. Acknowledging your current weaknesses and painpoints will only make your more relatable to your stakeholder and serve your better purpose in the long run.