- Greenwashing, which refers to misleading or false claims of sustainability, can harm a company’s reputation and lead to legal complications. Regulatory action is being taken to address greenwashing.
- To avoid greenwashing, banks should be specific, provide proof, avoid hidden trade-offs, and choose tools that enable them to comply with ESG governance.
- Solutions by CRIF and Strands can help banks verify their suppliers’ ESG data and track their clients’ carbon footprint to implement and promote more sustainable practices at the same time.
Whether intentional or unintentional, greenwashing can seriously jeopardize an organization’s reputation. Here are a few tips and strategies on how to stay away from greenwashing:
How greenwashing affects a company’s reputation
Sustainable marketing and advertising campaigns have become increasingly prevalent as organizations face pressure from consumers to address environmental, social and governance ESG issues. However, making claims that a company is environmentally friendly when these are false or not properly corroborated, intentionally or not, negatively impacts companies’ reputations.
As reported in an article on Harvard Business Review, based on a study on consumer sentiment, customers are highly likely to be aware of the gap between stated goals and implementation, and that customer satisfaction levels, fall as the number of goals outweighs the number of actions taken.
This leads to bad press, decreased customer engagement and loyalty, lost business partners, and ultimately profit loss.
In addition to reputational harm, greenwashing can lead to legal complications in many countries, as laws have been implemented to prohibit making false or misleading claims.
Regulatory action against greenwashing
Consumers want to be more confident about their choices and ensure that the companies they choose make genuine efforts to reduce their environmental impact.
The EU is taking action to address greenwashing with a proposed new law on green claims (March 2023). The proposal requires companies to justify claims that they make about environmental aspects or performance of their products and organizations with science based and verifiable methods.
In the UK, the Financial Conduct Authority (FCA) is proposing a package of new measures including investment product sustainability labels and restrictions on the use of terms like “ESG”, “green” or “sustainable” to address greenwashing.
How to avoid greenwashing in green banking
To avoid greenwashing, banks must align their business practices with genuine purpose and embrace radical transparency. To avoid deceptive or exxaggerated claims, financial institutions offering green banking solutions should consider a few tips:
- Be more specific: avoid claims that are poorly defined or broad, leading to potential misunderstandings by consumers.
- Provide proof: choose claims that can be easily backed by accessible and reliable proof.
- Avoid the hidden trade-off: avoid claims that suggest a product is “green” based on a narrow environmental claim that does not take into account other important environmental issues.
- Stay clear from false claims: sustainable practices should be founded on reliable scientific evidence and made readily available to all stakeholders. Also, remaining open to feedback and adapting to new findings is crucial to improve one’s position and reputation.
- Comply to ESG governance: embed ESG criteria in existing risk management procedures and controls and consider introducing a bespoke ESG policy. ESG governance can assist you in following and having evidence of robust processes to make accurate public statements and claims about how “green” your sustainable products and services are.
Concrete tools to improve your ESG strategy
In response to customer demand and market demand, CRIF has leveraged its expertise and methodology as a global credit bureau to create a solution allowing clients to reduce risk by verifying the ESG data provided by their supply chain partners. The ESG score by CRIF authenticates and grades the supplier based on five key areas: business, environmental, social, governance, and industry. To obtain an ESG score, suppliers must complete an extensive online self-assessment, submitting documents and information.
By also enabling more sustainable practices
As a bank, you can contribute to a more sustainable finance industry by increasing awareness of environmental issues, promoting green finance, and encouraging sustainable investments among your clients. The initial step in this direction is to track your clients’ CO2 emissions based on their spending and to keep them informed of their carbon footprint via your banking app.
With Strands Carbon Footprint Insights, bank transaction and open bank’s data get enriched to provide a complete overview of the user’s spending-based emissions. New insights and suggestions are generated according to the user’s behavior, to advise them on the best next choices to take for a more sustainable lifestyle. Find out how it works: