With UNIBA’s Worldwide Conference in Bangkok, Thailand (25-28 October 2023) at our doorstep, we will spend the upcoming weeks introducing speakers, sponsors and the latest hot topics on ‘The Changing Face of Risk’. In this edition Carl Puttock from Beazley introduces the risks associated with greenwashing.
Climate change-related litigation is on the rise globally, and the organisations named in court filings are from an increasingly wide range of industry sectors.
Perhaps aligned to this, climate change and other environmental risks appear to be rising up the corporate agenda, as identified in our Risk & Resilience 2023 Spotlight on Environmental Risk report where 24% of global business executives ranked environmental risks on a par with business risks, such as supply chain disruption, corporate reputation, as their most pressing areas of concern for their businesses.[1]
Research published by the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science, found that 475 climate litigation cases were filed around the world between 1 January 2020 and the end of May last year.[2]
While the majority of cases have been brought against governments, and much of the remaining litigation has been focused on fossil fuel companies, the report found that, more than half of the 38 cases filed against corporate defendants in 2021 featured companies in other sectors, including food and agriculture, transport, plastics and finance.
Within this wider legislative trend, there is also a growing incidence of cases brought against firms for engaging in so-called ‘greenwashing’. This can range from accusations that firms are making unsubstantiated or misleading claims about the environmentally friendly credentials of their products or services, to making highly selective disclosures about the environmental impacts of their business practices, to misleading and/or overstated claims about their performance in the context of halting climate change (sometimes referred to as ‘climate-washing’).[3]
This type of litigation has impacted a number of industry sectors but in particular, the focus is on financial institutions. By way of example DWS, the asset management unit of Deutsche Bank, was hit with a consumer class action in Frankfurt in October last year, with the consumer group alleging the company’s Invest Environmental, Social and Governance (ESG) Climate Tech fund had over-stated its green credentials in its marketing materials. We have also seen regulators take action in the US with Goldman Sachs and BNY Mellon both resolving charges with the Securities and Exchange Commission (SEC) in 2022, which illustrates the intensifying scrutiny that so called ‘sustainable’ or ‘green’ funds are facing.
Greenwashing has also become a competitive issue, as an Italian court ruling at the end of last year demonstrated - in the first case of its kind. The Court of Gorizia upheld an injunction brought by automotive upholstery supplier Alcantara against rival manufacturer Miko, on the basis that claims made by Miko about the environmental credentials of its faux suede microfibre material were not only unsustainable but constituted an unfair competitive advantage.[4]
Another outcome of the rise in accusations of greenwashing or climate-washing is the related phenomenon of ‘green hushing’, where companies seek to hide their climate strategies from wider scrutiny.[5] A report by consultancy firm South Pole found that nearly a quarter (23%) of 1200 “sustainability-minded organisations” surveyed about their “science-aligned climate targets” had decided not to publish details of their plans.6 This highlights the sense of nervousness felt by some business leaders around the potential downside of climate change commitments.
