As greenwashing has the potential to significantly impede the green transition and, thereby, risks distorting the financial markets and undermining the effective allocation of capital, the non-profit organization ClientEarth and the Asia Investor Group on Climate Change (AIGCC), have published a new guide to help the Asian finance sector understand such issues.
The publication, entitled “Greenwashing and how to avoid it: An introductory guide for Asia's finance industry”, offers practical information to combat greenwashing and has been drawn up with asset managers, banks and institutional investors in mind.
To help break down the risks, the guide outlines emerging forms of greenwashing and the different regulations, guidelines and legal actions on greenwashing across Asia and elsewhere. It is supplemented with selected case studies from leading financial institutions in Asia and contains recommendations for financial institutions to guard against greenwashing risks.
Since 2022, some regulators in Asia, in particular the Hong Kong’s Securities and Futures Commission and the Monetary Authority of Singapore, have introduced a series of new environmental, social and governance-focused rules and regulations to safeguard against the rise in potential greenwashing risks.
While in Australia, the corporate regulator, the Australian Securities and Investments Commission, has already fined and issued infringement notices to a number of firms, including investment manager Vanguard Investments Australia, for alleged greenwashing activity.
“Despite, or perhaps because of, the increasingly prevalent problem of greenwashing, there is a concerning lack of clarity around how exactly it arises or attracts legal sanction,” says Sean D. Tseng, the guide’s co-author and ClientEarth’s legal consultant. “Ultimately, the hope is that we make green finance much more genuine, high-integrity and unimpeded – all critical components in securing a climate-resilient future.”
Herry Cho, managing director, head of sustainability and sustainable finance at SGX Group, adds: “The lack of global consensus and market clarity on claims that are ‘green’ has led to an increase in greenwashing accusations. If left unchecked, it presents long-term risks and can impede the progress in our urgent fight against climate change.
“[Therefore] institutions need to reflect on and evaluate their climate governance and communication strategies to ensure the transparency of their intentions on climate action. The forward-looking approach of the report is particularly helpful to achieve that.”
Commenting on the guide, Sophia Cheng, chief investment officer at Cathay Financial Holdings, points out: “Greenwashing creates inaccurate pricing, an uneven playing field, reduces investor confidence and may lead to misallocation of capital. This guide is a useful starting point for financial actors to apply and take concrete actions to guard against unnecessary exposure to greenwashing risk.”