14. Companies have acted to reduce greenwashing risk
Increasing attention is being paid to greenwashing. Among other things, the European Commission is preparing the so-called Green Claims Directive and ESMA is focusing on the issue in its enforcement priorities.1 CSRD-compliant sustainability reporting will increase the availability, reliability, and comparability of sustainability data, thereby reducing the risk of greenwashing.
The FIN-FSA asked audit committees to state whether they have paid attention to the greenwashing risk[2] and possibly planned, reviewed or taken measures to mitigate the risk (question 9).
Based on the responses received by the FIN-FSA, approximately one third of the audit committees had discussed greenwashing risk in their meetings. Many responses stated that the objective is to reduce greenwashing risk in the company’s operations, for example by training personnel or setting science-based sustainability targets.
Around half of the respondents stated that companies reduce greenwashing risk by ensuring that the sustainability information they report, as well as practical measures are reliable, for example as follows:
- “The risk related to green claims used in marketing and sales is mitigated via ensuring all environmental claims are based on 3rd party verified data.”
- “The audit committee has ensured that risks to the achievement of ESG targets have been identified in the company and that the measures necessary to combat the risks have been determined. In this way, the company also mitigates a possible “greenwashing” situation where operations do not correspond to the communicated targets.”
A number of respondents drew attention to the fact that greenwashing risk is also linked to the setting, communication and marketing of sustainability targets. The respondents mentioned, among other things, that “operations are adjusted immediately if some claim is found to be misleading or incorrect. In its sustainability communications, the company always strives for transparency and comparable communication of data”.
According to the understanding obtained by the FIN-FSA, audit committees are aware of greenwashing risk. Audit committees play an important role in contributing to the integrity of sustainability reporting.
1 For example, common enforcement priorities for European securities market supervisors and Progress Report on Greenwashing.
2 In this survey, the term greenwashing refers to greenwashing as defined by the European supervisory authorities (European Securities and Markets Authority, ESMA, European Banking Authority, EBA, and European Insurance and Occupational Pensions Authority, EIOPA). Greenwashing occurs, for example, when an entity’s reporting or other communication contains unrealistic or misleading information about the entity’s sustainable development goals or achievements. Greenwashing may be unintentional or intentional (www.esma.europa.eu/press-news/esma-news/esas-put-forward-common-understanding-greenwashing-and-warn-risks).