Sorting the truth from the greenwash

Written by Roger Hattam on 13th Jun 2024

This article is from our Good Guide to Avoiding Greenwash, available to download free here.

When you save or invest your money with a bank or financial provider, it’s a relationship founded on trust. Trust that they will keep your deposit safe and live up to the claims being made about the brand or product.

This is especially true when it comes to claims around sustainability. More and more brands are keen to highlight their environmental and social responsibility.

But when it comes to financial products and services in particular, a lack of clear guidance on what makes something genuinely sustainable can make it hard to trust such claims – and to spot the truth from the greenwash.

Our recent survey found that 59 per cent of us are concerned about greenwashing and would actually be willing to switch providers if banks fall foul of the upcoming anti- greenwashing rule from the FCA.

We also joined forces with Ethical Consumer to look at how people’s expectations matched up to their financial providers’ environmental standards. The research found that the majority (55 per cent) considering themselves to be ‘green’ savers or investors actually have their money with providers ranked as ‘worst’ for the environment.

These findings demonstrate the worrying truth about how well-intentioned citizens are being misled on how their money is being invested. In an industry dominated by opaque sustainability marketing, it is time for much higher transparency.

There are millions out there wanting their money to align with their values. However, this is not yet matched with real industry commitment to clearly signpost what that money is funding through a provider’s loans and investments.

Learn about the new rules in our Good Guide to Avoiding Greenwash

A welcome step

As a bank with sustainability integrated into the core of our business model, we support the need for clear requirements around greenwashing and regulations that will make it easier to find genuinely sustainable products and services.

Indeed, we have publicly called for such regulation for years and as a European bank, have proactively engaged with the EU’s Sustainable Finance Reporting Directive (SFDR) since it was announced in 2018. All of Triodos Investment Management funds have been classified as Article 9 funds, the most sustainable category.

The introduction of the FCA’s UK sustainability disclosure and labelling regime is an important step in the right direction. If consumers – and organisations of all kinds – know they can trust sustainability-related claims, this will ultimately increase confidence in the sustainable finance market and encourage greater flow of capital into products that can genuinely drive positive change.

However, some words of warning. ‘Greenwashing’ is a well-recognised term, but it is not commonly understood to encompass social issues as well as environmental ones, although that seems to be the intention of this new regulation. This could lead to confusion as to the scope of the rule.

Also, while the guidance will make it harder for financial services firms to make unsubstantiated claims relating to sustainability, it does also place the burden of proof on those doing good. And it is not yet clear if it will increase the requirements for overall transparency that would enable informed choices between products with positive and negative environmental impacts.

For now, the burden is on organisations like us to prove we do what we say we do – but where are the requirements for others to demonstrate ‘no harm’ or stricter minimum standards? It does mean there is a risk that it just creates more ‘greenhushing ’.

Genuinely sustainable options

The best way to get an idea of whether a product is genuinely sustainable is to look at a bank’s lending and investment portfolio as a whole.

  • Are financial providers transparent about where they lend money and what kind of organisations they support?
  • Are environmental or social claims substantiated and applied across their operations and not just on specific products offered?

As well as actively screening out negatives – such as never investing in fossil fuel companies – to truly invest in people and the planet, banks need to actively fund areas that are changing the world for the better. At Triodos, we have led this charge and set the standard for using our customers’ money to drive positive change, whether through funding renewable energy, nature conservation or community-run housing.

With the final guidelines now out, we hope that the new rule will bring positive change in the financial industry and encourage the transparency that is so desperately needed.

Risk warning: when you invest, your capital is at risk. 

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