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Greenwashing claims: from reputation to investigation

Jess Alden

A move by German and US regulators to investigate exaggerated green credentials shows more than reputation is at stake

We’ve warned for months of the growing risk around ESG initiatives and the need to have substance over style when it comes to ESG initiatives. It’s a growing area of concern in the reputation management sphere.

Reputation is the upstream of investigations when it comes to any form of misconduct (the likes of Theranos present an extreme example), companies that have fallen or have made missteps have one thing in common, reputational issues and press queries were when things started to unravel. Even if your company isn’t a house of cards, reputational risk grows in the gap between expectation and reality.

It’s the turn of ESG to take the spotlight in the regulatory sphere and it’s a key reputational trend that we’ve picked up on.

Last week, DWS the asset management function for Deutsche Bank came under scrutiny for allegedly misrepresenting its sustainability credentials – prompting the SEC and the BaFin to launch investigations. DWS robustly deny the allegations being reported. They stand by their ESG disclosures in their annual report but the publication of the allegations and the fact of the investigations didn’t stop their share price from tumbling last week.

To date, whistleblowing to the media in an ESG context has been ringfenced to a reputation problem and source of embarrassment, for example, Blackrock’s former Chief Investment Officer of Sustainable Investing, Tariq Fancy calling out their practices as ‘greenwashing’ in the Independent caused them some reputational damage but it did not inhibit their freedom to operate or cause any large scale investigation.

The steps that the SEC and the BaFin have taken in relation to DWS are perhaps the start of ESG becoming a regulatory concern that will inevitably lead to more investigations – for a long time now, pressure groups have criticised banks for ‘greenwashing’, but now the pressure is mounting from the regulatory side.

The saying goes, there’s no smoke without fire, and allegations of ‘greenwashing’ are going to start leading to investigations and potentially large scale fines.

It’s not a ground-breaking thought to say that it’s time to start prioritising ESG and not to think of it as an afterthought for PR and reputation management – but now it’s a very real risk to a corporate’s freedom to operate and subsequent litigation risk. If you don’t keep your reputation clean in relation to the environment, the regulators are bound to come knocking shortly. Dealing with allegations of greenwashing head on and finding solutions at the source rather than papering over the PR cracks will inevitably provide corporates with the longevity they strive for, those that don’t will be left behind in the ‘new normal’.