Answering the call from the European Supervisory Authorities “ESA” (the European Banking Authority, the European Securities and Markets Authority, and the European Insurance and Occupation Pensions Authority) who have previously requested information, evidence, and analysis on the concept and effect of ‘greenwashing’, the report, Joint Response to ESA Call for Evidence on Greenwashing, presents a detailed discussion of the concept, case studies and recommendations.
Traditionally, the term "greenwashing" has been defined as ‘the intersection of two firm behaviours: poor environmental performance and positive communication about environmental performance’. However, the multifaceted nature of modern corporate activity makes a neat definition now almost impossible.
For example, the practice of ‘selective disclosure’, which has been described as ‘a symbolic strategy whereby firms seek to gain or maintain legitimacy by disproportionately revealing beneficial or relatively benign performance indicators to obscure their less impressive overall performance’.
Another form of greenwashing is known as ‘decoupling’, which describes the process whereby symbolic actions are taken ‘which tend to deflect attention to minor issues or lead to create “green talk” through statements aimed at satisfying stakeholder requirements in terms of sustainability but without any concrete action’.
The report dives further into definitions and witnessed behaviours. It puts forward that there is a systemic aspect to greenwashing that regulators need to consider, noting that researchers have found that it is the brown firms with ‘egoistic’ management approaches that are the most likely to engage in greenwashing. Firms with principled or ethical codes of working are seen as statistically more unlikely to engage in greenwashing practices.
Anti-Greenwashing Recommendations Provided
The report puts forward five key recommendations for the European Supervisory Authorities to consider:
- Increase investment in Monitoring Infrastructure that investigates and identifies potential greenwashing practices.
- Ensure the soon-to-be developed ESG Rating regulations consider greenwashing.
- A stronger and more punitive regulatory regime for greenwashing offences.
- Increase investment in informational campaigns from regulators.
- Commission a feasibility study regarding the potential of stand-alone greenwashing legislation.
The team who produced the report highlighted that the report was a collaborative effort and is provided on the basis of transparency and openness.
The authors include; ESG lawyer Paul Watchman, who led the 2005 UN initiative which devised a legal framework for ESG investing, Paul Clements-Hunt, who oversaw the creation of the PRI and who Aston University says is credited with coining the ESG acronym. Also, Aston Law School’s Dr Daniel Cash and Ben McQuhae, founder of the boutique Hong Kong law firm that Paul Watchman joined last year, McQuhae’s company, Clements-Hunt’s advisory firm.
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