Tuesday 25 May 2021 3:30 pm

Over half of financial services professionals claim ‘greenwashing’ is rife in the industry, study says

More than half of financial services professionals believe ‘greenwashing’ is rife within the industry, according to a study released today, as employees fear competitors intentionally inflate their sustainable practices.

The study by data agency iResearch Services, which polled 550 decision-makers at financial institutions, also found that 38 per cent believe every business is operating ‘unethically’ by claiming to be environmentally sustainable.

In the run-up to COP26, the UN’s flagship climate conference, financial institutions across the UK and the City have been upping their green game.

‘’Companies are under increasing pressure to play a more active and visible role in helping combat climate change. It is no longer acceptable to simply do no more harm, there is now an expectation for businesses to rapidly implement policies which will lead to a sharp reduction in carbon emissions, given the scale of the mountain to climb,” senior investment and markets analyst at Hargreaves Lansdown, Susannah Streeter, told City A.M.

“In terms of reputation, we’ll see actions come under close scrutiny and it will become clear which are just an attempt to pull the wool over the eyes of both consumers and investors. COP26 is approaching rapidly and the pressure for action will only intensify over the coming months.”

In March, the European Union’s Sustainable Finance Disclosure Regulation came into effect to ensure firms are accurate about their commitments to sustainability pledges, but post-Brexit Britain may lag behind on this level of disclosure.

“There is a clear lack of trust within financial services that businesses are talking the talk, as well as walking the walk when it comes to adopting a more environmentally-friendly business model. This can only be achieved through a shift in mindset within the boardroom to make this a reality,” associate director of sales and thought leadership at iResearch Services, Kevin Anthony, said.

Nearly half of financial services professionals, 45 per cent, felt being truly sustainable was too costly.

36 per cent of those interviewed thought that competitor financial institutions, from banks to hedge funds, lacked the resources to become sustainable and that they are still managing the short-term impacts of Covid.

Meanwhile, 30 per cent thought companies were deliberately waiting for regulation to come through which would force their hand on environmental obligations.

However, British banks have been reported to have financed 805m tonnes of CO2 production in 2019, according to a study published by environmental campaign groups Greenpeace and WWF today.

“Finance is the UK’s dirty little secret,” Greenpeace UK’s executive director, John Sauven said, adding that “Banks and investors are responsible for more emissions than most nations, and the UK government is giving them a free pass.”

Germany, the world’s ninth-largest CO2 emitter, had a carbon footprint of 776m tonnes in 2018. While the UK’s net emissions totalled 455m in 2019, excluding aviation and shipping figures.

“When people talk about reaching net zero emissions we often hear about renewable energy and electric vehicles, but there is much less focus on the City and its impact across the world,” director of UK-based issuer Sustainable Capital, professor Kevin Haines, said.

“Climate change is a global issue, so it is not good enough to boast that the UK is cutting emissions at home whilst British banks finance millions of tonnes of carbon across the world.”

Regulation

“The recent study by iResearch Services demonstrates the need for tighter FCA regulation of the practice of ‘greenwashing’ by financial institutions and advisers,” partner at law firm Browne Jacobson, Ed Anderson, told City A.M.

The City has been increasingly accused of hiding emissions within investments and project financing in other countries, as environmental, social and governance (ESG) matters creep higher on the investor agenda.

“However, it is important to note that there are two different types of engagement in the finance industry. There are the investors with the money and there are the companies that are trying to make money,” Haines added.

“We need the companies to change their behaviour and we need the investors to shape their investments to favour companies that are environmentally constructive rather than destructive.”

The rise of ESG may have increased the number of financial institutions looking to inflate their environmental practices, partner at law firm Bryan Cave Leighton Paisner, Ariel White-Tsimikalis, urged.

“Off the back of the rising tide of focus on ESG matters by investors and consumers alike, many are seeking to ride this wave through greenwashing and, consequently, the “sustainable” label is being applied to an ever wider range of products. 

“Having a more standardised ESG framework with harmonised benchmarking metrics will be helpful in eventually cutting through this.”

If ESG products have been mis-sold, then financial institutions will be looking a large increase in claims as a result, Anderson continued, “It will also be hugely damaging to the ESG agenda as a whole and that is too important to be allowed to happen.”

In April, MPs urged parliament to take steps towards banning greenwashing, by making environmental labelling compulsory for consumer financial products and called for task regulators to stop misleading claims.

The UK has been taking steps, but the lack of details in its plans to tackle the warming climate and the City’s funding of unsustainable resources has faced criticism from environmental groups – and has led to a string of climate protests that target the City’s financial institutions.

“In time they will no doubt continue to see the financial and other benefits to their businesses of greater transparency and genuinely effective ESG products but meanwhile further clear guidance and support from regulators is badly needed,” Anderson added.

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