The days are numbered for Greenwashing in Fintech
Despite a desperate attempt to deliver positive, genuinely sustainable results, the greedy act of greenwashing remains an all-too-widespread problem in the fintech and finance industries.
When acting sustainably restores faith in a company’s reputation, bad actors will undoubtedly seek to exploit the accolade to their own advantage; elements of which they see success through the use of greenwashing in the fintech industry.
Although sustainability, and especially environmental, social and governance (ESG) initiatives, has become the industry’s latest rising star, it is not a new issue for companies to engage in greenwashing.
The term first appeared as far back as 1986, when environmentalist Jay Westerveld criticized the hotel industry with reference to their practice of encouraging the reuse of towels and hotel linens, while the hotels themselves did little in the way of reducing their own energy consumption and instead sought to conserve laundry costs with the falsely offended initiative.
Essentially, greenwashing is when a company falsifies or exaggerates the true extent of its green efforts for the benefit of its own reputation.
The need to greenwash usually comes from the urge to replicate the success of genuine green efforts without putting in any of the legwork.
A measurable effect
Although not immediately indicative of active greenwashing, a Google Cloud report from last year revealed how well companies fare.
The survey of 1,491 managers in 16 countries found that as many as four out of five see the company’s sustainability efforts as above average.
Further results question the data quantifying this success, in that only 36 percent of respondents actually had the tools in place to measure the effectiveness of their sustainability efforts.
Considering this contradiction, 58 percent of executives admitted that they believe their organization is overestimating its efforts to go green, while another two-thirds questioned the genuineness of some of their organization’s sustainability initiatives.
Altin Kadarejafounder and CEO of Cardo AIthe platform for end-to-end data management, reporting and analysis, previously told Fintech Times how using the right mechanisms can reduce the risk of greenwashing, and offers an industry response to this problem.
These include an “increase in reporting and data requirements”, “a framework of positive incentives” and equipping investors with the right tools, which Kadareja cites as “questionnaires, personal meetings, dedicated software and other tools that can be used to find ESG -data, identifying sustainable assets, continuous monitoring of the project’s adaptation to the investor’s mandate.”
Stamps out greenwashing
Authorities around the world are recognizing the extent of greenwashing in the financial services industry as much as the consumers they serve are facilitating the rise of sustainable practices through demand.
When companies commit and expose greenwashing, the first domino to fall is consumer trust. When companies are caught, the brand’s reputation is at stake, and targeted exposure will cost both profits and consumers.
According to research carried out by the company for the management of carbon footprints Cogoaround 75 per cent of UK mobile banking customers want to know more about the environmental impact of their spending.
Moreover, greenwashing trivializes initiatives that are genuine ESG practices in action, further undermining the integrity of those who enforce their practices. Fortunately for everyone, regulators are meeting the questionable practice with a swift and heavy hand.
Live by the sword
Just two months after Google Cloud published its damning report last year, the The Basel Committee on Banking Supervisionn outlined the principles for a common baseline. All banks and supervisors in Basel Committee member jurisdictions should implement corporate governance, internal controls, risk assessment and management, and reporting “as soon as possible”.
A few months later, Martin Rohnermanaging director i GABVa global network of value-based banks, encouraged the financial sector to participate in November COP27 conference in Egypt to produce tangible, transformative results on ESG, saying that efforts must be “underpinned by a clear connection to the values that guide the overall business, otherwise they cannot be genuinely transformative.”
Around the same time, Britain’s Financial Conduct Authority (FCA) continued to put pressure on investment managers with new requirements for funds to disclose exactly how they meet the criteria to be environmentally friendly.
Similarly Advertising Standards Authority (ASA) issued bans on two of HSBCits advertisements promoting its investment campaign so as not to reveal the bank’s own negative contributions to the climate.
Over in the US, that The Security and Exchange Commission (SEC) clamped on Goldman Sachs Asset Management with a $4 million fine for its lax approach to practices and guidelines for achieving its ESG investments.
The US watchdog has expanded its greenwashing campaign to various sectors last year, including mining companies and health insurance distributors.
End of greenwashing?
It is clear that regulators have greenwashing on their radar and will confront any evidence of the practice head on. Industry leaders are increasingly focusing on delivering solutions that promote total transparency and compliance with the law due to this growing no-frills approach.
This includes the launch of The Payments Association‘Project ESG’ and Google Cloud’s Point Carbon Zero program as well as the emergence of ESG-inclusive sandboxes to encourage the development of targeted solutions.
Initiatives such as these are likely to increase participation in climate-friendly activities. However, it will ultimately be the responsibility of both regulators and consumers to determine greenwashing’s place in the future of the financial services industry.
