Operational risk association ORX 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 FCA is also due to introduce a greenwashing rule later in the year, while the three European supervisory authorities – EBA, EIOPA and ESMA – published a call for evidence on greenwashing in October last year.

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

ORX says 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.

The handbook aims to 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 respond to regulator concerns.

Simon Johnson, senior manager at ORX Scenario, said: “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.”

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