ORX, the world’s largest operational risk association has launched a greenwashing toolkit to support global banks and insurers create a greenwashing scenario - responding to the rapidly growing regulatory and societal focus on climate-related transition risks. 

The Competition and Markets Authority in the UK, which publishes its Green Claims Code, found that 40% of green claims made in the UK could be misleading and is looking at routes to enforcement. Similarly, the Financial Conduct Authority (FCA) is also due to introduce a greenwashing rule later in the year. The three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) published a Call for Evidence on greenwashing in October last year.

Further afield, the Australian Competition and Consumer Commission (ACCC) announced an internet sweep targeting greenwashing as part of its compliance and enforcement priorities for 2022-23 and MAS (Monetary Authority of Singapore) is tackling greenwashing with disclosure guidelines for retail ESG funds.

The development of this dedicated resource comes at the request of ORX service users, some of the largest financial institutions across the globe. Less than 10 of the 65 subscribers to ORX’s dedicated scenarios service, ORX Scenarios, have developed a greenwashing scenario to date, yet the majority are reporting a significant increase in pressure to develop a dedicated scenario for this rapidly evolving risk area.  

ORX Scenarios subscribers have been reporting increased stakeholder and senior leadership pressures, with more examples emerging in the industry amongst institutions, resulting in reputational damage. 

The handbook will help financial institutions develop a greenwashing scenario, enabling them to identify how the risk may occur within their organisation, understand the causes, the impacts, and the likelihood of a greenwashing event occurring. A scenario will also help firms to assign internal risk ownership, enhance controls and, in doing so, respond to regulator concerns.

Greenwashing can be defined as misconduct and misrepresentation related to marketing, selling or financing products or activities that are labelled as green. It can also be linked to deceit exercised in the marketing of ESG commitments and policies and in ESG and sustainability reporting to regulatory bodies. 

Simon Johnson, ORX Scenarios Senior Manager explains:

“As the world turns its attention to the urgent threat of climate change, regulators and society are demanding greater accountability from financial organisations. This heightened scrutiny brings with it a new set of risks – including greenwashing.  

“The reality is that whilst this is a relatively new risk, what financial institutions say and do today could have repercussions ten years down the line on their reputation and threats of legal action to name but two impacts.”

The toolkit includes a handbook with practical guidance on:

·         Preparation: documenting a series of internal and external sources used in scenario preparation and workshopping 

·         Assessment: guidance on developing scenario descriptions, qualitative assumptions and quantitative components, including mapping to ORX data standards to support consistency and benchmarking 

·         Governance: stakeholder definition and priority 

It also includes a range of resources including five ORX News digests covering greenwashing-related losses relevant to the financial sector, a Deep Dive on individual examples and editorial pieces exploring greenwashing and climate risk in more detail.

Simon Johnson adds:

“Each year we produce a handbook to support emerging risk areas flagged by our subscribers and this year greenwashing was identified as a priority. But a lot of financial institutions are just not at the stage yet where they are employing climate change experts and so individually, they just don’t have the data or expertise in-house. This is the gap in expertise that we are hoping to fill with the collective data and insight from our subscribers and ORX team in the toolkit.”