SARAH BIDINGER | Senior Consultant, Capco
LUDOVIC ZACCARON | Consultant, Capco
If there is one buzzword that current strategic discussions across all industries have in common, it is ESG. Even though sustainable investments initially started as a niche investment class, they are slowly reaching mass adoption. While environmental concerns like climate change previously seemed to be non-urgent, COVID-19 rewrote that narrative, and we are observing a massive disruption in public consciousness. With the wealth transfer taking place, demand for sustainable investments skyrocketing, and regulations and public scrutiny tightening, banks are under immense pressure to steadily fulfill growing demands for ESG products. However, this flight to green is increasingly considered as a cause for concern.
The “why” in relation to ESG is undebatable, we now need to focus on the “how” – or rather “how not to”. This is where greenwashing comes into focus. Based on recent large-scale scandals, it has become apparent that greenwashing can occur across the full investment value chain. Due to lack of global cooperation and adoption of what is really considered sustainable, greenwashing can be committed intentionally or unintentionally, if there is lack of proper due diligence at product, company, and/or point of sale level.
This article provides a framework for greenwashing prevention through the five key pillars of strategy, target operating model, governance, risk management, and data and reporting. Ultimately, key guidelines are provided to help financial institutions avoid the greenwashing trap, no matter where they are on their individual ESG journeys – be they laggards or frontrunners.