Our Anti-Greenwashing Framework: a preventive approach / Sustainability

Introduction to our Anti-Greenwashing Framework to guard your organization from greenwashing dangers

In our four-part weblog sequence “Deal with ESG monetary merchandise: present market dynamics, SFDR and greenwashing dangers”, we have now already addressed the difficulty of greenwashing within the monetary business, particularly asset administration and appeared on the definitions, causes, and choices to reduce greenwashing dangers. On this article, the query is posed what the monetary business can do to implement preventive measures for enhanced ESG compliance. What choices are there to stop greenwashing dangers? What features and processes ought to the interior danger administration course of give attention to? Be taught extra about our holistic Anti-Greenwashing Framework with a view to deal with greenwashing dangers at an early stage.

Sustainability is without doubt one of the key problems with our time, as is as soon as extra underlined by the present warmth wave and forest fires in Europe. As a part of the inexperienced transformation of the financial system, the monetary sector has been recognized by the European Union as a key participant as a result of its perform as mortgage giver, danger supervisor, underwriter and asset supervisor. The EU has printed a sequence of rules such because the Taxonomy Regulation and the Sustainable Finance Disclosure Regulation aimed toward bringing extra transparency to sustainable investments and enhancing ESG danger administration.

Present challenges and greenwashing dangers

Nonetheless, because the rules are step-by-step launched, the implementation of those rules remains to be difficult for monetary establishments within the absence of clear definitions and significant steering with regard to the methodologies to be utilized. Moreover, there may be nonetheless a scarcity of high-quality ESG information from the counterparties of economic establishments on which they’re dependent for their very own reporting. That is anticipated to enhance with the entry into power of the Company Sustainability Reporting Directive from 2025 onwards which mandates standardized and extra complete ESG reporting. Therefore, the place there may be solar, there may be additionally a shadow: The complicated and dynamic regulatory panorama proves difficult with regard to interpretation and might result in errors in inner processes and reporting exposing firms to greenwashing dangers. Moreover, there may be an elevated scrutiny by exterior stakeholders akin to NGOs, the media, and most people, but in addition buyers and enterprise companions, on the subject of company ESG commitments. Firms have to have the ability to exhibit how they plan to implement their commitments, e.g. by offering transition pathways with measurable benchmarks within the case of local weather commitments, in any other case they danger being uncovered for greenwashing.

In a nutshell, so-called “greenwashing” is at present not solely a buzz phrase anymore, however depicts complete reputational, operational and/or authorized dangers for companies. The growing variety of public greenwashing accusations towards varied monetary market members, together with at senior administration stage, underlines associated dangers, which may happen, even when the related exercise was performed with out false intent.

EU regulators have already begun to handle the subject as for instance the just lately printed progress studies on greenwashing by the European Supervisory Authorities have proven. However whereas particular anti-greenwashing guidelines are anticipated to be printed by the Monetary Conduct Authority within the UK, the EU nonetheless has an extended approach to go with a view to correctly deal with greenwashing on a broad foundation. Accordingly, to date, no related best-practice examples can be found in the marketplace, which may help companies in decreasing associated dangers. So what can firms do with a view to reduce the danger of greenwashing accusations? As these questions come up extra regularly, PwC Germany has developed a complete method with its devoted Anti-Greenwashing Framework which tackles all components of greenwashing dangers in related inner processes and features of an organization.

Anti-Greenwashing Framework

Our Anti-Greenwashing Framework offers a holistic guideline to establish the weak processes and features inside an organization and to outline and implement acceptable countermeasures. Primarily based on current insights offered within the ESAs progress studies on greenwashing, this framework is designed to strengthen a agency’s ESG-related compliance and set up preventive safety gates. On account of its versatile construction, the framework is adaptable to the person product portfolio, firm sort, location, and danger publicity of an organization and due to this fact every firm’s particular buildings and calls for.

The framework consists of varied (interrelated) parts that are related for a sound ESG compliance construction that stops and manages greenwashing dangers. The corporate’s ESG technique constitutes the inspiration of all respective processes, because it units the ESG aims relying on the ESG ambition stage of the corporate. A reputable ESG communication technique and energetic stakeholder engagement are vital for a corporation’s popularity.

Moreover, exterior assurance is prescribed by a number of sustainability rules, e.g. the Company Sustainability Reporting Directive or might be obtained on a voluntary foundation to validate claims and commitments. These features can therefore be seen as a body, during which an organization has to function and that due to this fact must be taken under consideration in associated inner processes.

Inside this body our framework identifies the regulatory obligations and voluntary commitments as essential parts for efficient ESG compliance, as they outline the ESG-related insurance policies and actions in addition to the scope of ESG reporting. As well as, you will need to combine ESG dangers into the corporate’s danger administration procedures. Particularly consideration must be given to the analysis of potential greenwashing occasions as a part of the danger stock course of. Since greenwashing dangers are manifold and onerous to measure, we suggest the PwC Skilled Elicitation as an method to quantify greenwashing dangers.

When assessing particular processes, the framework differentiates between internally oriented and client-oriented processes. Whereas the primary focuses on stopping greenwashing dangers by establishing a compliance-based company tradition (e.g. setting related incentives), information administration construction (e.g. information due diligence), and governance (e.g. integration of ESG-related dangers into the three traces of protection), the latter particularly targets the worth chain of economic merchandise, together with their growth in addition to corresponding distribution, advertising, and monitoring procedures, which frequently exhibit a excessive publicity to greenwashing dangers.

Lastly, greenwashing dangers might be considerably diminished by means of overarching transparency, granted by means of complete course of documentations in addition to consistency checks between all processes and features.

We suggest an iterative implementation course of with three consecutive rounds of checks with a view to deal with points that may be fastened on a short-term foundation, conduct a prioritization based mostly on the very best danger areas and a cost-benefit analyses of related measures, in addition to, lastly, pursue a holistic method protecting all parts, processes, and features outlined within the framework.

Subsequent steps

We are going to present an additional deep dive on our Anti-Greenwashing Framework in a future weblog publish, together with an in depth description of the beforehand talked about parts of the framework in addition to a prompt method for implementation.

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