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A RepRisk report released on Tuesday revealed a 70% increase in greenwashing incidents by banks and financial services companies globally over the past 12 months, compared to the previous year.

The bulk of these incidents were attributed to European financial institutions, with a significant number of the greenwashing claims focusing on fossil fuels.

RepRisk, a data firm specialising in Environmental, Social, and Governance (ESG) metrics, reported 148 greenwashing cases in the global banking and financial services sector for the year ending September 2023, up from 86 in the prior year.

Of these 148 incidents, 106 were committed by European financial institutions.

The European Banking Federation stated that the findings in RepRisk’s report are allegations rather than verified instances of greenwashing.

Greenwashing is the act of an organisation making false or misleading claims about its sustainability efforts, typically to improve its reputation and financial performance.

Regulatory bodies aim to eradicate greenwashing to enhance consumer and investor trust and to direct more funding into sustainable investments, although a legal definition for greenwashing has yet to be established.

RepRisk, which claims to have data dating back to 2007, identifies greenwashing when a company disseminates misleading information about environmental matters. 

The firm gathers this information from public sources and stakeholder feedback, rather than relying on company-published data. For example, if research uncovers that a company has exaggerated the environmental impact of an initiative, it counts as a greenwashing case.

“Over 50% of these climate-specific greenwashing risk incidents either mentioned fossil fuels or linked a financial institution to an oil and gas company. These incidents are not happening in isolation and regulators are increasingly aware of the scale of the problem,” RepRisk said.

The European Banking Federation (EBF) suggested that the rise in greenwashing allegations might be due to increased scrutiny of banks and their sustainability commitments, rather than intentional falsehoods by the institutions.

Banks play a pivotal role in financing corporate efforts to lower carbon emissions, including in sectors with high emissions, the EBF stated. The “concept of transition finance is not well-defined, and this lack of clarity can lead to unsubstantiated greenwashing accusations,” a spokesperson added in an emailed statement to Reuters.

UK Finance, representing the British banking and finance sector, announced that firms across the industry have placed environmental and social responsibility “at the core of their strategies.” It is collaborating with regulators to enhance transparency and ESG product labelling.

European Union regulators in June proposed a “common high-level understanding” of greenwashing and stated that financial institutions across the EU had made “misleading claims” about their sustainability credentials.

RepRisk noted that the banking and financial services industry is second only to the oil and gas sector in the number of greenwashing incidents.

The data firm also observed a broader rise in greenwashing. One in every four climate-related ESG risk incidents was tied to greenwashing, up from one in five the previous year. Furthermore, one in three companies implicated in greenwashing was also involved in “social washing.”

Social washing is described as companies casting themselves in a positive light by “obscuring an underlying social issue,” such as human rights abuses or negative community impacts, to safeguard their reputation and financial standing.

“Misleading communication around environmental and social topics not only impedes progress towards collective goals, but also damages trust with consumers and investors,” RepRisk wrote in its latest report.