Developing policies and frameworks to mitigate greenwashing risks

Cecila Lambert-Alcantara, Head of Sustainable Finance ESG Compliance, Credit Agricole CIB was a speaker at our recent ESG Europe Summit.

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.

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 limited in reliability. 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. For instance, whenever proxies are forbidden by the regulation, the use of equivalent data can be a tactical temporary solution, while the process for efficient and reliable data collection is set-up.

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 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 in call for evidence 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 team’s skills, enhancing ESG regulation awareness and embedding ESG criteria into all processes and internal policies of the company. As a financial institution, we make sure we are part of different working groups. We also hire external experts and professional consultants to leverage on their skills and knowledge. The ultimate goal is to scale up internal skills and knowledge on these topics.

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. Ultimately, greenwashing is an indicator of mis-selling, miscommunication or misconduct that ultimately is a compliance issue. A strong compliance set-up can better mitigate this risk.

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. In our internal processes, we make sure that communications are reviewed by compliance, legal and communication departments every time they are needed, especially for marketing documentation. For every new product and/or activity, the sustainability features are carefully analyzed by the expert teams and the second line of defense provides an opinion before the product/activity is validated and launched.

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

Greenwashing currently presents two major risks for financial institutions: reputational and litigation risks. Both can be harmful and can impact financial institutions’ financial and extra-financial figures. Major companies are currently being sued for greenwashing and their image is clearly, if not impacted in the financial market, deteriorated in the views of customers and civil society. Their competitiveness is also at stake, customers turning away from buying their products, or investors from investing in those companies.

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.