4 Steps to Take to Ensure Your Organisation is Walking the Purpose Walk
In April this year, the UK advertising watchdog was preparing to warn HSBC about using adverts to greenwash its reputation. The bank will also apparently be ordered to be transparent about its contribution to climate change – a ruling that would have wide implications for financial sector marketing.
The Advertising Standards Authority has reportedly found that HSBC misled customers in two adverts, which were published at bus stops in Bristol and London in October last year. The ads attracted 45 complaints because they selectively promoted the bank’s green initiatives, while omitting information about its continued financing of companies with substantial greenhouse gas emissions.
One advert said the bank would provide $1 trillion in financing for clients to transition to net zero, while the other pledged to plant 2 million trees to trap 1.25 million tonnes of carbon. Neither, however, mentioned that its current financed emissions equated to 35.8 million tonnes of carbon dioxide per year for oil and gas projects alone. The Advertising Standards Authority also noted that HSBC will continue to finance thermal coal mining until 20401.
In late May, German police raided DWS and Deutsche Bank over greenwashing allegations, with asset managers reportedly accused of misleading investors about ESG factors in its financial products2.
“Purpose-washing practices have ruinous consequences for both business and society,” says Gianluca Carnabuci, professor of organisational behaviour at ESMT Berlin. “They are bad for a company’s long-term business sustainability and they erode trust – and hence social capital – well beyond the boundaries of the company3.”
“There are firms out there that actively engage in green and purpose washing,” says Simon Thompson, Chief Executive of the Chartered Bankers Institute. “But I think that it most often happens inadvertently because there’s a lack of knowledge, skills and professional judgement,” Thompson continues. “In many cases it’s not because fund managers have made decisions to knowingly pull the wool over investors’ eyes. It's because they haven’t got the skills, taken the time, or brought in the independent expertise to verify the positive and negative environmental and social impacts of what’s in their portfolios.”
What steps can banks take to ensure that they don’t accidently get caught out in this space?
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Education: “It comes down to professionals having the knowledge and skills to go behind the headlines themselves,” says Thompson. “Or alternatively, seeking the independent expert assurance, verification and certification that might be needed.”
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Governance: Good corporate governance will enable boards and stakeholders alike to have oversight and assurance that companies are consistently meeting their ESG aims, and that they are reporting the adherence to appropriate standards in an open and transparent way.4
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Agility: “We are all going to have to be very agile in the way we respond to the changing industry focus,” says Delyth Richards Head of the Client Solutions Group at SG Kleinwort Hambros Bank. “From the investment management industry and regulatory areas about disclosure, to transparency to protect individual clients and the wider community.”
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Analysis: “What’s often missing is impact analysis,” says Thompson. “This requires a lot of expertise. But that expertise is what we need if we’re genuinely going to align finance with the goals of the Paris Agreement and the UN sustainability goals. Without that, we are inadvertently going down the path of purpose washing because we’re simply claiming that we are supporting sustainability goals without actually demonstrating it.”