Greenwashing in Finance: Navigating the Shades of Sustainability

February 2024
8 min read

This article explores the growing interest in sustainability among consumers and investors, the role of financial institutions in supporting green initiatives, and the rising concern about “greenwashing” – deceptive claims regarding environmental efforts by some financial institutions.

In recent years, consumers’ and investors’ interest in sustainability has been growing. Since 2015, assets under management in ESG funds have nearly tripled, the outstanding value of green bonds issued by residents of the euro area has surged eightfold, and emission-related derivatives have seen a more than sevenfold increase1

The global push for sustainable and environmentally responsible practices has led to an increased focus on the role of financial institutions in supporting green initiatives. One of the ways financial institutions use to incentivise sustainable investments, is by designing new products, such as blue bonds to protect marine areas and other sustainability-linked bonds2, or by transitioning to funding sectors with positive sustainability impact.

However, amidst the growing wave of environmental consciousness, the credibility of "green" claims made by some financial institutions is a point of concern. This phenomenon, known as greenwashing, is gaining attention, not only within financial institutions, but also with regulators. Financial regulators, including the European Supervisory Authorities (ESAs) and UK’s Financial Conduct Authority (FCA) have taken action against potentially misleading green statements made by institutions. Despite these regulatory interventions, the persistent risk of greenwashing persists, primarily due to the absence of consistent standards governing sustainability claims and disclosures. The lack of uniform criteria poses an ongoing challenge to effectively combatting greenwashing practices within the financial landscape.

Defining Greenwashing

The ESAs describe greenwashing as “a practice where sustainability-related statements, declarations, actions, or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product, or financial services. This practice may be misleading to consumers, investors, or other market participants” 3.

Financial institutions, as key players in the global economy, play a crucial role in fostering sustainability. However, some have been accused of using deceptive practices to push their green image without making substantial changes. This practice may be misleading to consumers, investors, and other market participants.

In practice, greenwashing can take different forms depending on the institution. For insurance companies, the European Insurance and Occupational Pensions Authority (EIOPA) found in their Advise to the European Commission on Greenwashing4 various examples where insurers misleadingly claimed to be transitioning their underwriting activities to net zero by 2050 without any credible plans to do so. Other examples include insurance companies falsely claiming to plant trees for each life insurance policy sold but failing to fulfil this promise, or products being marketed as sustainable merely because of a positive "ESG rating," despite the rating not taking into account any actual sustainability factors and focusing solely on financial risks.

Withing the banking sector, the EBA reported5 that the most common misleading claims relate to the current approach to integrating sustainability into the business strategy, claims on the sustainability results and the real-world impact, and claims on future commitments on medium and long-term plans.

Finally, for investment companies and pension funds, the European Securities and Markets Authority (ESMA) reported6 that most the common greenwashing practices result from exaggerated claims without any proven link between and ESG metric and the real-world impact.

Key Indicators of Greenwashing:

  1. Vague and Ambiguous Language: Financial institutions engaging in greenwashing often use vague terms and ambiguous language in their marketing materials. This lack of clarity makes it challenging for consumers to discern the actual environmental impact of their investments.
  2. Lack of Transparency: Genuine commitment to sustainability involves transparency about investment choices and the environmental impact of financial products. Institutions that are less forthcoming about their practices may be concealing less-than-green investments.
  3. Inconsistent Policies: Greenwashing is also evident when there is a misalignment between a financial institution's sustainability claims and its actual policies and practices. Actions, or lack thereof, can speak louder than words.

The Role of Regulatory Bodies

Greenwashing poses potential reputational and financial risks for the institutions involved. Addressing greenwashing might not only improve consumer’s trust in the products and services offered by financial institutions, but also will allow customers to make informed decisions that are align with their sustainability preferences and increase the capital into products that genuinely represent a more sustainable choice and drive a positive change. Tackling greenwashing should therefore be a priority for regulatory supervisors.

The introduction of the EU’s Taxonomy Regulation and the Sustainable Finance Disclosure Regulation (SFDR) addresses the initial concerns of greenwashing within the financial sector. The Taxonomy determines which economic activities are environmentally sustainable and addresses greenwashing by enabling market participants to identify and invest in sustainable assets with more confidence. SFDR promotes openness and transparency in sustainable finance transactions and requires Financial Market Participants to share the environmental and social impact of their transactions with stakeholders. In May 2023, the ESA published their progress report on greenwashing monitoring and supervision7. The report aims to provide insights into an understanding of greenwashing and identify the specific forms it can take within banking. It also evaluates greenwashing risk within the EU banking sector and determines the extend to which it might be and issue from a regulatory perspective.

In the UK, the FCA published in November 2023 a guidance consultation on the Anti-Greenwashing Rule8. The anti-greenwashing rule is one part of a package of measures introduced through the Sustainability Disclosure Requirements (SDR). The anti-greenwashing rule requires FCA-authorised firms to ensure that any claims they make to the sustainability characteristics of their financial products and services are consistent with the actual sustainability characteristics of the product or service and are fair, clear and not misleading, and have evidence to back them up. The propose rule will come into force on 31 May 2024.

While the existing and planned regulation contributes to addressing aspects of greenwashing, several measures have not yet fully entered into application, making the impact of the frameworks not visible yet. Beyond disclosures, regulators should also focus on tightening requirements on sustainability data and ratings, and creating mandates to prevent misleading statements and unfair commercial practices.

Going forward, as regulators gain more experience to comprehensively address greenwashing, financial institutions should expect increased supervision and enforcement of sustainable finance policies aimed at preventing misleading sustainability claims.

Actions to mitigate greenwashing risk

One of the biggest challenges financial institutions faced in relation to sustainability is that scientific progress, policy development and social values are in constant evolution. What was a well-supported green initiative two years ago can potentially be considered as greenwashing today.

In the meantime that stricter regulations and guidance is in place, financial institutions should take a broad view on how to develop and communicate sustainability strategies to mitigate greenwashing risk.

Here are three ways on how to prevent greenwashing:

  1. Promote disclosure: financial institutions should publish comprehensive sustainability reports and disclose ESG information as part of their financial reports.
  2. Commit to transparency: claims about environmental aspects or performance of their products should be justified with science-based and verifiable methods. Financial institutions should be transparent about their ambitions, status, and be open about any shortcomings they identified.
  3. Align business practices with purpose:  financial institutions should determine which climate-related and environmental risks impact business strategy in the short, medium and long term. They should reflect climate-related and environmental risks in business strategies and its implementation. In addition, they should balance sustainability ambitions with the reality of real transformation.

Zanders’ approach to managing reputational risk

Avoiding greenwashing should always be a priority for institutions. If a risk arises in this area, reputational risk management can help to limit negative effects. Due to the interdependencies between ESG, reputational, business and liquidity risk, the supervisory authorities are also increasingly focusing on this area.

In the context of reputational risk management, we recommend a holistic approach that includes both existing and new business in the analysis. In addition to identifying critical transactions from a reputational perspective, the focus is also on active stakeholder management. This requires cross-departmental cooperation between various units within the institution. In many cases, the establishment of a reputation risk management committee is key to manage that topic properly within the institution.


While many financial institutions genuinely strive for sustainability, the rise of greenwashing highlights the need for increased vigilance and scrutiny. Consumers, regulators, and industry stakeholders must work together to ensure that financial institutions align their actions with their environmental claims, fostering a truly sustainable and responsible financial sector.

Curious to learn more? Please contact: Elena Paniagua-Avila or Martin Ruf

  1. European Central Bank, Climate-related risks to fiancial stability, 2021. ↩︎
  2. European Central Bank, Climate-related risks to fiancial stability, 2021. ↩︎
  3. European Banking Authority, Progress report on greenwashing monitoring and supervision, 2023. ↩︎
  4. European Banking Authority, Progress report on greenwashing monitoring and supervision, 2023. ↩︎
  5. European Banking Authority, Progress report on greenwashing monitoring and supervision, 2023. ↩︎
  6. European Securities and Markets Authority, Progress report on greenwashing, 2023. ↩︎
  7. European Banking Authority, Progress report on greenwashing monitoring and supervision, 2023. ↩︎
  8. Financial Conduct Authority, Guidance on the Anti-Greenwashing rule, 2023. ↩︎


is now part of Zanders

In a continued effort to ensure we offer our customers the very best in knowledge and skills, Zanders has acquired Fintegral.

This site is registered on as a development site.