The UK ‘Greenwashing’ Briefing Series: PART I

By Rodrigo Zepeda, CEO, Storm-7 Consulting


This multi-part series of blogs will introduce readers to the concept of ‘greenwashing’, and it will seek to show why greenwashing should now be considered to be a highly important issue in the United Kingdom (UK). More importantly, by comparing greenwashing initiatives adopted in the European Union (EU) and the United States (US), it will seek to demonstrate why at present the UK still arguably seems to be lagging behind in terms of addressing greenwashing issues through modern and sophisticated environmental regulatory finance developments.


At present, there is no globally accepted definition of the term ‘greenwashing’. In theory, greenwashing combines poor environmental performance with positive communication about environmental performance (Majláth 2017, p. 93; Delmas and Burbano 2011, p. 65). This basically involves misleading people or firms about environmental performance or environmental benefits of products or services (Majláth 2017, p. 93). In practice, its use generally requires geographical and contextual definition and application, eg by region, country, and industry.

For instance, in the UK within the business to consumer retail industry, greenwashing may refer to misleading green claims or communications about green credentials made by businesses that may potentially risk misleading retail consumers (Competition and Markets Authority 2021) – so called corporate greenwashing. Practical examples recently seen in the media include misleading claims about environmental credentials made by fashion brands that may potentially breach UK consumer protection laws (Butler 2022).

Sustainability in business is huge. In practice it can easily translate to significantly increased market share and profitability for firms that have carefully adopted diverse sustainability practices. That is why many retail firms may be tempted to ‘jump on the green bandwagon’ and promote green and environmentally sustainable practices and products, when in actuality their business practices may not accurately reflect such claims. One example of a carefully crafted corporate sustainability strategy in the UK is that adopted by the retail clothing company ‘Superdry’, which states: “Our goal is to become the most sustainable listed global fashion brand by 2030(Superdry 2022).

In contrast, greenwashing in investments (investment greenwashing) may take on an altogether different meaning owing to the inherently more complex nature of financial instruments and investments. It may be more difficult to evaluate if a long-term financial investment (based on a future scenario analysis) reflects its green credentials, as compared to a retail consumer t-shirt (based on an already manufactured and distributed physical product).

Accordingly, the basic underlying issue behind greenwashing in finance seems to be, that it is much more difficult to understand whether the green credentials proffered by firms and investments are legitimate or not in the first place, ie, because of a lack of clarity, because of a lack of unified standards, because of a lack of commonly accepted and defined green objectives.

The field of ‘ESG’, or environmental (Esocial (S), and governance (G) investing, referring to investments that are made in firms that score highly on environmental and social responsibility scales (as determined by independent third-party firms and research groups) (Napoletano and Curry 2022). Here, ESG greenwashing may refer to financial services firms exaggerating the green credentials offered by their financial products which in some way misleads investors (Financial Conduct Authority 2020). Within the EU, greenwashing is defined within the Taxonomy Regulation ((EU) 2020/852) to refer to:

“…the practice of gaining an unfair competitive advantage by marketing a financial product as environmentally friendly, when in fact basic environmental standards have not been met.”
(recital 11).

The term may be used more generically to refer to a product or service that has been represented as having certain ESG credentials, when in fact it does not (Allen & Overy 2021). The international law firm ‘Allen & Overy’ believes that greenwashing raises a number of key risks and issues in financial services, and consequently that it is a highly topical issue because:

(1) the risk of greenwashing presents a significant concern given that the EU is aggressively seeking private capital investments in a range of EU green initiatives (greenwashing risks negatively impacting the investor confidence in such initiatives);

(ii) there is a fast-growing demand for green/ESG financial products and services (this raises significant investor protection and market integrity concerns); and

(3) there are increasing concerns about (greenwashing) litigation risk (Allen & Overy 2021, p. 2).


In February 2022the European Securities and Markets Authority (ESMA) published his ‘Sustainable Finance Roadmap 2022-2024’ which set out three priorities within the field of sustainable finance, namely:

(1) tackling greenwashing and promoting transparency (Priority 1);

(2) building the sustainable finance capacities of ESMA and National Competent Authorities (Priority 2); and

(3) assessing, analysing, and monitoring ESG markets risks (Priority 3) (ESMA 2022).

With respect to Priority 1, ESMA states that defining the fundamental features of greenwashing, along with investigating and addressing it with coordinated action and common solutions is a key objective, in order to safeguard investors (ESMA 2022). EU greenwashing initiatives that support Priority 1 include the Sustainable Finance Disclosures Regulation ((EU) 2019/2088), and a proposal for a Regulation on European green bonds (COM/2021/391).

On the face of it, regulatory developments and actions in both the EU and the US seem to be rapidly advancing. In
June 2022Asoka Woehrmann, the chief executive of the Deutsche Bank subsidiary DWS, resigned after German law officials raided its offices as part of a greenwashing probe led by prosecutors in FrankfurtFinextra 2022). The investigation focused on alleged misrepresentations and fraud, regarding the green credentials of investment products marketed and sold by DWS to investors, eg, statements made in sales prospectuses of DWS funds.

In the US, Forbes magazine asserted that the US Securities and Exchange Commission (SEC) had become fed up with ESG greenwashing (van Lierop 2022). It would seem that this led to the formation of the ‘Climate and ESG Task Force’ (SEC ESG Taskforce) within its Division of Enforcement in
March 2021in order to proactively identify ESG-related misconduct (SEC 2021). In fact, only recently in
May 2022 the SEC charged BNY Mellon Investment Adviser, Inc., for misstatements and omissions about ESG considerations with respect to certain managed mutual funds (SEC 2022).

The SEC’s order found that the firm had violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940, and Rules 206(4)-7 and 206(4)-8, and Section 34(b) of the Investment Company Act of 1940 (SEC 2022). The BNY Mellon unit agreed to pay a $1.5 million penalty. At the same time, in
May 2022 Commissioner Hester M Peirce acknowledged and analyzed the range of complexities and envisaged problems with recently proposed new rules regarding enhanced disclosures about ESG investment practices in the US (Peirce 2022).

Over a decade ago, academic researchers were already investigating the drivers of greenwashing in consumer and capital markets (Delmas and Burbano 2011). Since then, there have been countless climate change, environmental, ESG, green, and sustainable development initiatives developed that can be identified in the literature. Yet, there seems to be a distinct gap in the literature with respect to greenwashing regulatory developments in the UK. As will be seen, this illustrates somewhat of a discord between the prioritisation and advancement of the issue of greenwashing in finance within the EU and US, compared to the current approach adopted within the UK.



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