Greenwashing under the spotlight

Written by James Thomas on Monday March 28, 2022

Regulators are placing greater scrutiny on organisations’ claims about their green credentials

In response to global challenges such as climate change, an upsurge[1] in demand for ‘green’ financial products and services has taken place, and firms are today keen to emphasise their commitment to sustainability. Alongside this has emerged increasing regulatory attention on the threat of ‘greenwashing’, with concerns that green investment products, in particular, may be the next mis-selling scandal.[2]

A disconnect

Since COP26, several financial institutions have outlined commitments to reducing their CO2 emissions (including their ‘financed emissions’), although many observers have noted a disconnect between what institutions are saying about climate change and what they are doing about it.

In one recent example, the Financial Times reported that a green investment fund, launched at COP26, is likely to be wound down ‘because institutions including big banks never delivered expected seed funding’.[3] Elsewhere, The Guardian found that ‘Europe’s biggest banks … have provided £24bn to oil and gas companies that are expanding production, less than a year since pledging to target net zero carbon emissions’.[4]

Meanwhile, BlackRock – the world’s largest investor, whose CEO Larry Fink recently stated that climate change has placed us ‘on the edge of a fundamental reshaping of finance’[5] – stands accused of ‘privately sooth[ing] oil industry concerns about their public support for greener investment’.[6]

A need for transparency

As discussed in a previous ICA article, disclosure standards – such as the Task Force on Climate-related Financial Disclosures (TCFD) standards and those under development by the International Sustainability Standards Board (ISSB)[7] – are gaining traction. These will enable environmental NGOs, consumers and regulators to more effectively hold financial institutions to account over their green credentials, providing a yardstick by which actual performance can be measured against marketing claims.

The investment management sector has come under particular scrutiny when it comes to disparities between product labelling and product performance. Until now, the market for ‘green’ or ‘ESG’ funds has suffered from a lack of consistency and clarity. As Simon Jones, CEO of Investing Reviews, notes:

The fund management industry has created an unbelievable amount of smoke and mirrors[8] around ESG investment, so much so that some of the ESG funds out there hold the ultimate sin stocks in their portfolios.

The problem prompted the UK’s Financial Conduct Authority (FCA) to write[9] to all UK-authorised fund managers in July 2021 over concerns that many ‘applications for authorisation of investment funds with an ESG or sustainability focus … contain claims that do not bear scrutiny’.

Design, delivery, disclosure

  • sustainable investment labels 
  • consumer-facing disclosures for investment products 
  • client- and consumer-facing entity- and product-level disclosures by asset managers and FCA-regulated asset owners.

Resulting rules will be consulted on in Q2 2022.

The UK is not alone in addressing such issues. The International Organization of Securities Commissions (IOSCO) has published recommendations[12] for securities regulators and policymakers regarding sustainability-related practices, policies, procedures and disclosures in the asset management industry, to address greenwashing concerns. At the European level, the European Securities and Markets Authority’s (ESMA) Sustainable Finance Roadmap 2022-2024[13] highlights ‘Tackling greenwashing and promoting transparency’ as the first of its three priorities.

Most recently, the Monetary Authority of Singapore (MAS)[14] announced that it is preparing anti-greenwashing measures to cover the asset management sector, including ‘ESG-specific requirements on fund naming, prospectus disclosures and periodic reporting disclosures’.

Clarity and consistency

It is hoped that the application of consistent environmental reporting standards across the wider economy will bring greater clarity and assurance to both the retail and institutional investment landscape.

Indeed, greenwashing is acknowledged as a concern by many within the investment management sector itself. In a survey of its membership[15] the Independent Investment Management Initiative (IIMA) found that 88% believed that ‘the fund management industry has a problem with greenwashing’, and many investment managers attribute this to the limited availability of consistent climate performance data from listed companies. Most recently, a group of leading investment firms called on listed companies to disclose their environmental data via non-profit organisation the Carbon Disclosure Project (CDP).[16]

Others cite the lack of consistency in how ratings agencies define and measure companies’ ESG performance. According to SigTech research,[17] 66% of professional investors said that they struggle with ESG rating agencies, which can provide ‘wildly divergent ESG scores at a company level’. IOSCO has called for oversight of ESG ratings and data product providers.[18]

Actions and words

The developments outlined above are by no means exhaustive, and do not even touch upon the potential increase in litigation[19] associated with greenwashing, or wider consumer protection developments (such as the UK Competition and Markets Authority’s recently launched Green Claims Code).[20] Needless to say, greenwashing is an area that will gain growing attention, and the need for firms to provide evidence of how their words match their actions will be paramount.


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[1] Financial Times, ‘UK green funds attract record retail inflows’: – accessed March 2022

[2] Financial Times, ‘Green investing: the risk of a new mis-selling scandal’: – accessed March 2022

[3] Financial Times, ‘Climate ETF on brink of failure months after UN summit launch’: – accessed March 2022

[4] Jasper Jolly, ‘Europe’s biggest banks provide £24bn to oil and gas firms despite net zero pledges’, The Guardian, 14 February 2022: – accessed March 2022

[5] Blackrock, ‘A Fundamental Reshaping of Finance’: – accessed March 2022

[6] Rob Davies and Josephine Moulds, ‘Green credentials of world’s largest investor questioned over oil industry emails’, The Guardian, 9 March 2022: – accessed March 2022

[7] Robert G. Eccles and Bhakti Mirchandani, ‘We Need ESG Accounting Standards’, Harvard Business Review, 15 February 2022: – accessed March 2022

[8] Investing Reviews, ‘Beware the ESG Wolves in Sheep’s Clothing in 2022’, 10 December 2021: – accessed March 2022

[9] Financial Conduct Authority, Authorised ESG & Sustainable Investments Funds: improving quality and clarity, 19 July 2021: – accessed March 2022

[10] Freshfields Bruckhaus Deringer, ‘FCA sharpens focus on greenwashing of investments: summer update’, 6 August 2021: – accessed March 2022 

[11] Financial Conduct Authority, ‘DP21/4: Sustainability Disclosure Requirements and investment labels’, 3 November 2021: – accessed March 2022

[12] IOSCO, Recommendations on Sustainability-Related Practices, Policies, Procedures and Disclosure in Asset Management, November 2021: – accessed March 2022

[13] European Securities and Markets Authority, Sustainable Finance Roadmap 2022-2024, 10 February 2022: – accessed March 2022

[14] Monetary Authority of Singapore, ‘Keynote Address by Mr Tan Keng Heng’, 28 January 2022: – accessed March 2022 

[15] Independent Investment Management Initiative, ‘New UK ESG Regime: Backed By IIMI Members’:

[16] Charlie Conchie, ‘Top finance firms call for transparency on environmental performance’, City AM, 14 March 2022:,via%20non-profit%20organisation%20the%20Carbon%20Disclosure%20Project%20%28CDP%29. – accessed March 2022

[17] Institutional Asset Manager, ‘Investor activism and use of ESG ratings are set to rise, says SigTech research’, 10 November 2021: – accessed March 2022

[18] IOSCO, IOSCO calls for oversight of ESG Ratings and Data Product Providers, 23 November 2021: – accessed March 2022

[19] Lexology, ‘ESG claims in the banking and financial markets Sector: will “greenwashing” claims soon be common in the UK?’, 14 February 2022: – accessed March 2022

[20], ‘Greenwashing: CMA puts businesses on notice’, 20 September 2021: – accessed March 2022


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