Regulators are starting to clamp down on greenwashing. Until recently, there was very little oversight of how ESG funds are marketed, but in May 2022, the SEC fined BNY Mellon Investment Adviser US$1.5m for “misstatements and omissions” with regard to the ESG standards of some of its mutual funds.1 Then, in November 2022, the SEC fined Goldman Sachs US$4m2 for not “following its policies and procedures involving ESG investments”. Those fines were small, but the risks to financial services firms are growing – and not just in the US. In Europe, DWS – the asset management arm of Deutsche Bank – was accused in 2022 of mis-selling some financial products as sustainable. In March 2023, DWS settled the case by signing a ‘cease and desist’ order on advertising the fund. The same consumer group that took DWS to court also won a greenwashing case against Commerzbank in February this year. As the legal precedents increase, so will the pressure on firms.

But what exactly is greenwashing? There is currently no legal definition of greenwashing in England and Wales. The European Securities and Markets Authority is consulting on ‘a more granular understanding’3 of greenwashing but the final report won’t be due until May 2024. 

That fuzzy legal backdrop is part of the reason why so many funds are marketing ‘green’ securities that are not always as sustainable as investors assume. But, despite the lack of clarity on what greenwashing is, there is a clear bottom line for boards.

Putting too positive a spin on a firm’s ESG standards has long been a PR problem. Soon it will be a legal problem: fraud.

Greenwashing isn’t defined, but fraud is.

According to the Oxford English Dictionary, fraud is ‘any wrongful or criminal deception intended to result in financial or personal gain’. Committing fraud is usually a criminal offence. That is, it can mean a custodial sentence for those held responsible, and significant fines for, and reputational damage to, their firm.

In the UK, fraud includes:
  • neglecting to disclose information though you had a duty to do so 

  • knowingly making an untrue or misleading representation for gain, or to cause others loss

    ESG fraud risks are many and varied. Firms will need
    to provide details of their environmental, social and governance performance. If a firm materially mis- represents any ESG data, it could find itself in trouble. So, if, for example, its standards of consumer protection fall short, or it is found to have mis-sold products as ESG- standard compliant when they were not, the board could face serious consequences.

    This joint paper with The London Institute of Banking & Finance outlines what bank boards need to consider when it comes to avoiding ESG fraud, and why.


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Ilse Bakker
Post by Ilse Bakker
June 1, 2023
Ilse Bakker is a consultant at Nextwave-Infinium and trainer at The Centre for Sustainable Finance at The London Institute of Banking & Finance. Emmanuel Rondeau is a visiting Professor at The London Institute of Banking & Finance. Emmanuel is a Non-Executive Director for La Banque Postale in France, Chair of the Board Risk Committee. He has been a banking executive for more than 30 years, in Paris and London. (Edited by Ouida Taaffe, editor of Financial World, the magazine of The London Institute of Banking & Finance.)