Developing policies and frameworks to mitigate greenwashing risks

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The views and opinions expressed in this article are those of the thought leader as an individual, and are not attributed to CeFPro or any particular organization.
Philip Masquelette, Chief Risk Officer, Ulster Savings Bank

How can financial institutions manage data requirement and limitations to mitigate greenwashing risks?

The collection of the ESG data required for external reporting and internal monitoring is one of the key challenges faced by financial institutions. Currently, ESG data is limited, heterogeneous and little reliable. To avoid greenwashing claims, it is important for financial institutions to set-up a centralized framework for managing the collection and updates of data, and for monitoring and controlling its use. A precise strategy, a dedicated governance and standardized methodologies need to be defined.


How can financial institutions look to understand requirements despite little guidance?

Since the European regulatory landscape on ESG and sustainable finance is moving and currently imprecise, banks need to work on their strategy along with the regulatory bodies, working groups and financial associations. An internal and strong ESG regulatory watch can help financial institutions to foresee the impacts of upcoming regulations. Participations to call for evidences and whitepapers is a way to obtain further guidance from the regulators. In the meantime, financial institutions must ensure that the spirit of the European sustainable finance strategy is reflected in the new frameworks being defined. Ensuring compliance with new ESG requirements also asks for upscaling the internal teams skills, enhancing ESG regulations awareness and embedding ESG criteria’s into all processes and internal policies of the company.

Why is it important to review greenwashing beyond climate change?

Greenwashing exceeds the sole topic of climate change. Greenwashing claims can target any statement regarding the sustainability of products or services – hence, encompassing environmental, social and governance issues. Sustainability is a broader concept that not only integrates climate change but all aspects of the society that are meant to contribute to a more sustainable way of living.

In what ways can financial institutions effectively communicate commitments to consumers?

Transparency and objectivity are key when communicating on sustainability commitments. Transparency means being able to prove and having the data to support our claims. Before communicating on any commitment, financial institutions must ensure they have collected the right data, have defined methodologies to process it and have the means to monitor and control their commitments.

For clients to understand and trust, communication should be done in a balanced, careful, clear, transparent and accurate way. Sustainable and/or ESG features should not be exaggerated nor prominent in financial institutions’ communication.

Why is it crucial to financial institutions that greenwashing is avoided?

Greenwashing currently present two major risks for financial institutions: reputational and litigation risks. Both can be harmful and can impact financial institutions’ financial and extra-financial figures.To avoid losing customers trust and satisfaction, or being the target of greenwashing claims and complaints – potentially leading to pecuniary sanctions or penalties – it is crucial for banks to set-up safeguards: dedicated policies and procedures, efficient governance, enhanced testing and controls.

Philip will be speaking at our upcoming Risk Americas Convention

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