Common Greenwashing Traps for Banks

I've heard a lot of conversation this week about the SEC's indication that it will start to look more closely at the disclosures companies are making about their climate impacts.  I spend a lot of time looking at 10-K and 10-Q reports from public companies, so I get to see a wide range of discussions. But I thought it would be interesting to look specifically at banks and some of the greenwashing traps they fall into.

1. The bank's board isn't involved in setting environmental policy. It is so easy to assume that climate and environment are operational, not strategic, issues. Any bank environmental policy needs to address the ways that climate and environment impact the bank's operations, its overall enterprise strategy, and its credit policies and procedures.
2. A bank is convinced that being green is a marketing task that requires communications, but forgets that actions speak louder than words.
3. A bank promotes the green benefits of one aspect of its operation (we finance solar panels!) but forgets to mention all the non-green aspects of its operations and lending practices that may or may not wipe out those benefits.
4. The bank overlooks the environmental impacts of many many small actions and focuses only on a few large actions. For example, this could apply to looking at and reporting on only large commercial loans but overlooking small business loans.
5. Buying carbon credits to offset a bank's emissions but then forgetting to check whether those carbon credits actually resulted in a reduction of greenhouse gas emissions or sequestering of carbon. I've seen a lot of financial institutions buy carbon credits to offset their employee travel, but they should start first with the necessity for all that employee travel, reduce unnecessary travel, and then consider some offset options that can be easily monitored and reported. I've seen so many carbon credit funds with almost no long-term monitoring or transparency. And no plan for what to do when a project fails. Banks should actively monitor all of its carbon offset strategies and not hesitate to change course when a particular method doesn't work.
6. Narrowing the scope of the reporting and disclosures of the bank's operations so they exclude the impact of your lending activities. Impacts from problem loan resolution should also be included.
7. Climate disclosures should always include some discussion of retiring assets and contingent liabilities that will eventually cause environmental and climate impacts. Forgetting that environment risk management is a long-term commitment is greenwashing mistake No. 7.

Read more about the SEC's disclosure review at Bloomberg: https://www.bloomberg.com/news/articles/2021-04-21/sec-targets-greenwashers-to-bring-law-and-order-to-esg-green-insight​

​Photo by Sharon McCutcheon on Unsplash