Ireland: bank regulators need to address greenwashing

Consumers do not trust banks’ claims about climate and sustainability products, Central Bank of Ireland (CBI) deputy governor Sharon Donnery has warned. She said regulators need to address the issue of greenwashing to “ensure the transparency and integrity of ESG data and the credibility of ESG products”.

Concerns around greenwashing came up during the CBI’s review of the consumer protection code, she said at the Banking and Payment Federation of Ireland annual conference on 12 June.

“Any sense that firms are pursuing shareholders’ interests at the expense of their customers or the environment will be hugely damaging – to firms themselves (and so ultimately their shareholders), but also to their customers, and to the generational challenge of transitioning to a climate neutral economy,” she said.

The European Central Bank climate stress tests discovered a lot of inconsistencies, data gaps, and deficiencies regarding climate reporting, she said.

The CBI’s review also found that many banks were not prepared for an environmental risk assessment, Donnery said.

“Many banks also appeared to lack clearly defined long-term strategies for credit allocation policies that reflect the various transition paths, or are in the early stages of factoring climate risk into their credit risk models,” she said.

Donnery said that findings on both the European and domestic level found that while there has been progress, more needs to be done “and a wait and see approach is no longer feasible”. She reminded financial institutions that they have until the end of the year to meet regulatory expectations on climate risk.

The CBI announced in early May it would crack down on greenwashing and recommended market participants focus their investments on products that comply with the EU’s sustainable finance disclosure regulations and taxonomy regulation.

Donnery’s comments reflect the recent findings of the EU’s banking watchdog that greenwashing is widespread in the financial industry. The European Banking Authority found evidence that banks and financial institutions could be misrepresenting their sustainability efforts and that future ESG pledges were more prone to greenwashing. In some cases, banks would portray their investments as sustainable when they weren’t or downplay their involvement in projects linked to fossil fuels.

The bloc has made several changes in recent years to increase transparency around financial products labeled as green or ESG, such as the EU sustainable finance framework, EU taxonomy and ESG disclosure rules, and unfair marketing rules. In addition, last week the European Commission unveiled proposed rules for ESG rating providers that would provide more transparency and regulation of the firms that rate companies’ ESG policies and systems.