HSBC says greenwash risks have potential to impede market access

The decision comes as financial watchdogs make increasingly clear they won’t tolerate exaggerated or false environmental, social and governance claims. Real-world examples of the tougher regulatory environment have sent chills through the finance industry. The fund unit of Deutsche Bank AG, DWS Group, recently said it’s probably facing a fine after being investigated by German regulator BaFin and the US Securities and Exchange Commission for alleged greenwashing.

In the US, firms that have been fined include Goldman Sachs Group Inc. and Bank of New York Mellon Corp. Those penalties were small: BNY paid just $1.5 million, while Goldman agreed to pay $4 million after the SEC said it didn’t properly weigh ESG factors in some investment products. But the finance industry is increasingly sensitive to the reputational fallout. In the case of DWS, a police raid tied to the greenwashing investigations was promptly followed by the departure of its chief executive officer.

Last month, the European Banking Authority said lenders face growing reputational and legal risks if they don’t live up to their climate pledges. That’s as signatories to the world’s biggest climate finance coalition, the Net-Zero Banking Alliance, continue to channel money into new oil, gas and even coal operations.

A study published last month by French nonprofit Reclaim Finance found that since NZBA was formed in April 2021, members have piled more than $269 billion into fossil-fuel companies that are still expanding their businesses. The International Energy Agency said back in 2021 that an immediate halt to new fossil finance was key to ensuring temperature rises don’t exceed the critical threshold of 1.5C.

HSBC, which has set itself an ESG financing target of as much as $1 trillion by 2030, is also monitoring the “physical risk” and “transition risk” tied to climate change. The bank said greenwashing is “an important emerging risk that is likely to increase over time as we look to develop capabilities and products to achieve our net-zero commitments.”

NatWest Group Plc, which made history last year when it became the first UK bank to have its climate goals scientifically verified, went a step further and put a price tag on the cost of greenwashing. In its latest climate report, the bank described a hypothetical scenario “where increased competition in the green finance market leads to ambitious product designs and diminished robustness of governance,” with a potential financial impact as high as £315 million ($380 million).

Both NatWest and HSBC said they’re training staff to make sure they’re better equipped to tackle the risk of greenwashing. Standard Chartered Plc said separately it has started offering similar programs. StanChart plans to integrate the management of greenwashing risks into its reputational and sustainability risk type framework, policies and standards, it said.

Separately, Lloyds Banking Group Plc said in its sustainability report on Wednesday it is adopting a so-called double materiality approach to climate risk, meaning it also considers its own footprint.

“Key climate-related conduct risk considerations are that we have clear processes and controls in place so that we avoid any potential ‘greenwashing’ through ensuring that sustainability-related claims, naming and marketing are clear, fair and not misleading, and consistent with the sustainability profile of products, and ensuring fair customer treatment as part of our role in supporting the transition to net zero,” Lloyds said.

(By Alastair Marsh and Greg Ritchie)