This guide is designed to help financial companies implement effective strategies to mitigate greenwashing risks, based on insights from the "Report on Greenwashing Monitoring and Supervision."
1. General Principles for Sustainability Claims
Accuracy and Representation:
- Ensure sustainability claims accurately reflect the company's overall profile or the specific product’s profile. Avoid omitting significant information that could mislead stakeholders .
- Claims should be proportionate, fairly representing the extent to which sustainability factors are integrated into the product or service.
Substantiation and Evidence:
- Support claims with robust, reliable, and verifiable data. Clearly state any conditions or caveats that apply .
Up-to-Date Information:
- Regularly review and update sustainability claims to reflect changes in strategies, policies, operations, or products. Communicate changes transparently and promptly .
Clarity and Understanding:
- Present sustainability-related information in a clear, understandable manner tailored to the target audience .
2. Governance and Internal Processes
Enhanced Governance:
- Adapt and enhance governance structures to incorporate sustainability claims into decision-making processes, risk management, internal audits, investment, and lending policies .
- Establish internal committees to oversee environmental commitments and validate methodological choices .
Internal Controls:
- Strengthen internal controls to ensure compliance with sustainability standards. This includes rigorous review of product approvals, marketing materials, and advertising .
Training and Expertise:
- Invest in capacity building by providing regular training on the latest regulatory developments and sustainable finance practices to management, compliance functions, and relevant business lines .
3. ESG Data Management
Data Quality and Transparency:
- Build internal capabilities to assess and verify the reliability and robustness of external ESG data. Transparency about data sources and methodologies is crucial to mitigate misinformation risks .
Filling Data Gaps:
- Develop strategies to address data gaps and ensure that sustainability claims are based on accurate and comprehensive information .
4. External Verification
Third-Party Reviews:
- Utilize external reviews and certifications to enhance the credibility of sustainability claims and products. This can include pre-issuance assessments, verification of financing allocations, and post-issuance performance reviews .
5. Product and Service Level Practices
Clear Product Governance:
- Apply rigorous product governance standards to ensure sustainability claims about products and services are fair, clear, and not misleading. Ensure transparent information throughout the product lifecycle .
Market Guidance and Standards:
- Leverage industry best practices and market guidance for product design, definitions, and criteria to support credible sustainability claims .
Sustainability-Linked Loans:
- Apply sufficient scrutiny to sustainability-linked loans, ensuring that KPIs and SPTs are ambitious, material, and consistent with the borrower's sustainability strategy. Consider external verification to enhance credibility .
6. Forward-Looking Commitments
Credible Planning and Monitoring:
- Substantiate forward-looking sustainability commitments, such as net-zero pledges, with credible plans and strategies. Monitor progress regularly and report transparently .
Transition Plans:
- Develop and implement detailed transition plans using scientifically grounded scenarios and metrics to ensure alignment with sustainability targets .
7. Risk Management
Integration of Greenwashing Risks:
- Incorporate greenwashing risks into overall risk management frameworks. This includes conduct, operational, reputational, and other financial risks such as liquidity and funding risks .
Stress Testing and Scenario Analysis:
- Use stress testing and scenario analysis to gauge the potential impacts of greenwashing on financial risks. This can help anticipate market reactions and litigation risks .
By implementing these practices, financial companies can better navigate the complexities of sustainability claims and reduce the risk of greenwashing, thereby maintaining the trust of investors, consumers, and other stakeholders.
