Greenwashing means “behaviour or activities that make people believe that a company is doing more to protect the environment than it really is”. According to The Guardian, the term originated in the 1980s to describe the behaviour of companies which claimed to be environmentally-friendly but in fact had questionable records.

Competition and Markets Authority action

In November 2020 the UK’s main competition regulator, the Competition and Markets Authority (CMA), noted that UK consumer spent £41 billion a year on ethical goods and services in 2019 – almost four times as much as two decades earlier. They expressed concern that a surge in demand for environmentally friendly products and services could incentivise some businesses to make misleading, vague or false claims about their products, such as exaggerating their environmental impact. The CMA launched an investigation into the issue, finding that 40% of firms’ green claims could be misleading. In September 2021 it published a “Green Claims Code”, developed in consultation with businesses and consumer groups, to help businesses comply with the law. It contained six principles:

  1.  claims must be truthful and accurate
  2. claims must be clear and unambiguous
  3. claims must not omit or hide important relevant information
  4. comparisons must be fair and meaningful
  5. claims must consider the full life cycle of the product or service
  6. claims must be substantiated

 The CMA gave businesses “until the New Year [i.e. 2022] to make sure their environmental claims comply with the law”, following which it intends to conduct a full review into misleading green claims and “take action against offending firms”.

Greenwashing in financial services

In April 2021, the Treasury Select Committee published its report ‘Net Zero and the Future of Green Finance’. The report concluded that “The financial services industry broadly accepts that ‘greenwashing’ is detrimental to good consumer outcomes and to the achievement of the net zero goal. The Treasury must work with the FCA to ensure that the regulator has the appropriate remit, powers and priorities, and uses its powers, to prevent ‘greenwashing’ of financial products available to consumers.” The FCA responded that it “has heard concerns that consumers may find it challenging to validate firms’ claims about the sustainability characteristics of the products they bring to the market” and agreed that they should “work together with the Treasury to ensure that there is a regulatory framework” in place to enable consumers to trust sustainable finance products offered to them.

May 2021 global study by data agency iResearch found that more than half of businesses in financial services believe at least some competitors are deliberately ‘greenwashing’ to mislead customers about their ethical practices.

Greenpeace UK’s executive director has described finance as “the UK’s dirty little secret,” saying that “Banks and investors are responsible for more emissions than most nations, and the UK government is giving them a free pass.” City A.M. noted a possibility that “post-Brexit Britain may lag behind” the EU on levels of disclosure in sustainable finance.

 

UK Government action

In a House of Commons statement on 9 November 2020, Chancellor Rishi Sunak noted plans to introduce a “green taxonomy”, defining what “green” means to help firms and investors better understand the impact of their investments on the environment. This would empower investors to make better-informed decisions and help tackle greenwashing.

In June 2021 the Government established an independent Green Technical Advisory Group (GTAG), chaired by the Green Finance Institute, to provide non-binding advice on standards for green investment. It has five ongoing workstreams, including exploring how to support the UK’s transition to net zero and avenues for promoting a sustainable “race to the top” internationally. This will support the Government’s commitment to make climate-related disclosures mandatory for all firms, including in financial services, by 2025.

A Government policy paper “Greening Finance: A Roadmap to Sustainable Investing” was published in October 2021. It noted that the UK’s main financial services regulator, the Financial Conduct Authority, had received a “growing number of low-quality authorisation applications from ESG [Environmental, Social and Governance]-themed funds, many of whose sustainability claims did not stand up to scrutiny.” It also cited a 2021 Institutional Investor Study by asset management firm Schroders, which found that 59% of institutional investors said greenwashing was “the major challenge to sustainable investing”.

 

Further information

House of Commons Library, Financial services: contribution to the UK economy, 8 December 2021

House of Commons Treasury Committee, Net Zero and the Future of Green Finance: Responses to the Committee’s Thirteenth Report of Session 2019-21, 15 July 2021


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