Another risk to add to the risk register: Greenwashing

The bank chose to add ‘greenwashing’ to what is already a very large list of risks it runs across its global operations.  HSBC’s annual report stated: “Expectations with respect to the intersection of environmental, social and governance (ESG) issues and financial crime as our organisation, customers and suppliers transition to net zero, are increasing, not least with respect to potential ‘greenwashing’.” 

HSBC has had a difficult time recently on the greenwashing front. Last October adverts it ran to publicise a number of its climate initiatives – such as the $1tn of financing it provided to its clients to help them transition to net zero and the two million trees it was helping to plant, which it claimed would lock in 1.25 million tonnes of carbon over their lifetime ­­– fell foul of the Advertising Standards Association (ASA). The ASA ruled that consumers would not understand that as well as these two positive examples of fighting climate change, the bank was also a significant source of finance to businesses that pollute the environment.

Earlier on in the year, HSBC also faced reputational damage when its then-head of responsible investment, Stuart Kirk, gave a speech downplaying climate risks. Unfortunate media headlines flowed from that Ratner-like quote from Kirk: “Who cares if Miami is six metres underwater in 100 years?” So HSBC must be feeling rather exposed and this context helps understand its push to put in place measures to prevent further such errors.

HSBC ESG Review

In its Environmental Social and Governance review HSBC states: “If we are perceived to mislead stakeholders on our business activities or if we fail to achieve our stated net zero ambitions, we could face greenwashing risk resulting in significant reputational damage, impacting our revenue generating ability and potentially our access to capital.”  The bank is making a clear linkage between its ability to raise funds on the international money markets and reputational damage resulting from how it handles the demands of ESG. This for a bank is serious stuff indeed.

As I have written in a previous blog, ESG stands for Environmental, Social and Governance. It is way of judging organisations by the impact they have on the environment, especially in how they are addressing climate change; how an organisation manages its relationships with its wider stakeholders including its employees, its suppliers and the communities it operates in; and how it, in effect, governs or runs itself which would include issues such as executive pay, internal controls and so on.

The ‘E’ in ESG has probably attracted the most attention so far but the ‘S’ and the ‘G’ are quickly rising up the agenda too. To be fair to HSBC in their ESG Review, they cover all aspects in great detail.  

Taking the ‘E’ first though what do we, and HSBC, mean when they are talking about “greenwashing” and how would an organisation find itself caught out?

The Cambridge dictionary defines “greenwashing” as: “Behaviour or activities that make people believe that a company is doing more to protect the environment than it really is.” 

The best place I have found to understand exactly what this means in the UK at least is the Competition & Markets Authority whose stated purpose is, “to promote an environment where people can be confident they are getting great choices and fair deals, competitive, fair-dealing businesses can innovate and thrive and the whole UK economy can grow productively and sustainably.”

In essence environmental claims made by your business should be viewed no differently to any other claims you may make. Consumer protection law exists to ensure any claims made by businesses are truthful, accurate, clear, and unambiguous. Consumers must have the information they need to make informed decisions about which organisations to use or buy from.  

However, when it comes to green claims there are a few things you may have missed. ESG is an evolving area, and a lot of the terminology can be challenging – how many people could off the top of their head define accurately what net zero means? What exactly is meant by “eco-friendly? When making claims about your products and services, you must do so in a way your customers can easily understand. No bamboozling them with unfamiliar or poorly defined terms.

Customers must be given the full picture. This for me was the issue behind the ASA’s censure of HSBC. The bank was showcasing positive steps it had taken to tackle climate change, but the backdrop is that it is still a major funder of fossil fuel companies. The ASA are one of the most obvious ways the CMA’s Green Claims Code is being enforced. 

The CMA expects you to provide “robust and credible evidence” for the claims you make. Where and how will you do that? Which standard will you be adhering to as there are rather a lot of them out there?

Do your claims cover the full lifecycle of your product or service “from creation to disposal.” That’s a tall order. An “organic” product must consist almost entirely of organic components. Claiming a product is recyclable when in reality only one part of it is will certainly not cut the mustard. The CMA have posted a short video which may help.

On 10 February this year, the demands on businesses making green-related claims went up a notch with an update published by the advertising industry. The Committee of Advertising Practice (CAP), which is the sister organisation of the ASA, updated its guidance on the use of carbon neutral and net zero claims in advertising which it appears to feel are not well understood by consumers but are being widely used by businesses. The most notable change to the existing guidance is around the use of carbon offsetting.  

The new guidance states: “Marketers should ensure that they include accurate information about whether (and the degree to which) they are actively reducing carbon emissions or are basing claims on offsetting, to ensure that consumers do not wrongly assume that products or their manufacture generate no or few emissions.”  

For the next six months, the CAP say they will be monitoring carefully the use of terms such as carbon neutral and net zero to decide whether a further review is necessary. Now is the time if you haven’t done so already to run a slide rule over any use your organisation is making of such terms so you don’t find yourself in the same position a certain global bank just did.

Chris Tucker is Chair of the CIPR Crisis Communications Network where this post was first published. Read the original post.