Greenwashing in finance: a closer look

Greenwashing is fast becoming a key area of focus for financial regulators around the globe, evidenced by the growing number of cases against banks for misrepresenting their Environmental, Social and Governance (ESG) credentials. According to research published earlier this year by the World Business Council for Sustainable Development, the number of lawsuits involving ESG-related issues has grown by 25% in the past 30 years. High-profile cases of intentional greenwashing, such as the VW emissions scandal, though still shocking, are now being superseded by cases that are far less clear-cut. Until now, regulation in this area has been largely voluntary and open to interpretation. But as many jurisdictions look to become more prescriptive with their approach to regulating this area of finance, it makes for a complex and hazardous environment for risk and compliance professionals. In our latest free report, we take a look at some examples of high-profile greenwashing cases and how the regulatory landscape for targeting and preventing greenwashing is shaping up.


DWS Group (DWS) is an asset manager headquartered in Germany.  Previously part of Deutsche Bank, it became a separate entity in 2018 when it was floated on the Frankfurt Stock Exchange.

The firm is currently under investigation by German and US financial regulators for greenwashing allegations.

Problems at DWS first came to light in 2021 when Desiree Fixler, who had been employed as head of sustainability at the German asset manager for just eight months, blew the whistle on the firm, alleging it had made certain misrepresentations to investors about its sustainability status. She was promptly fired from her role and later chose to go public with her story. “In my mind…I was being brought in to fix the problem…and it was my job as their first sustainability officer to come in and align the entire platform,” explained Fixler in an interview with the Financial Times’ Moral Money newsletter.

“What freaked me out…about this company,” says Fixler, “was its disregard for accuracy when it came to non-financial reporting, in particular their ESG assets under management and their ESG capabilities.” Fixler says that when it came to finalising the firm’s annual report, she “dug her heels [in]” and demanded to know why DWS was making external statements about its ESG capabilities that did not truly represent what was going on inside the company. “[Internally,] we acknowledge we don’t have a tracking system;, we acknowledge that we have some holes in our capabilities. We can’t then contradict that and make external statements in contrast…That’s misrepresentation. And misrepresentation – if material – is securities fraud.”

Fixler went into her last board meeting expecting to get an immediate answer about how the firm would be correcting the issues she had highlighted. “Unfortunately the answer was my termination,” she says. Fixler was immediately fired and a story claiming she was incompetent was leaked to the press, damaging her reputation in the market. This prompted Fixler to go to the media herself and share her story. DWS’s offices were subsequently raided by the police, the CEO was replaced and investigations by German and US financial regulators are currently ongoing.

Fixler felt some vindication when DWS published its 2021 annual report and had marked down its ESG assets under management by 75%. She hopes that blowing the whistle on the firm will lead to rapid change in the ESG space and how this area of finance is viewed and moderated. “Nothing raises the bar on Wall Street better than an enforcement action,” she says. “A sustainability officer is not a marketing officer. A sustainability officer could be considered as a compliance officer…We needed this correction. It was never appropriate just to tell the market that there is guaranteed outperformance from investing in an ESG portfolio; we did not have the data on that.”

DWS has reportedly put aside €27m as it nears reaching a settlement with US regulators, more than two years after the scandal broke. The €27m has been ring fenced for US regulators and a further €39m in legal costs was disclosed earlier this year. DWS has denied any wrongdoing, though chief executive officer Stefan Hoops has admitted some of the bank’s past marketing campaigns around ESG may have been “exuberant.”

Banking on Climate Chaos: the worst offenders

According to the Rainforest Action Network (RAN), which has been publishing a detailed annual report (Banking on Climate Chaos) on the banking industry’s financing of fossil fuels for 14 years, US banks are the worst offenders when it comes to funding coal, oil and gas, accounting for 28% of all fossil fuel financing in 2022. JPMorgan Chase remains the world’s biggest contributor since the Paris Agreement and Citi, Wells Fargo, and Bank of America all remain among the top five fossil financiers since 2016.

Royal Bank of Canada

For the first time since 2009 however, the latest RAN report identified a Canadian bank – Royal Bank of Canada (RBC) – as the world’s biggest investor in fossil fuels. This isn’t the first time RBC has been targeted by environmental campaigners. In October 2022, an investigation was launched by Canada’s Competition Bureau after RBC was accused of misleading its customers about the actions it is taking to help tackle climate change. The complaint was made by six individuals, including members of Canada’s indigenous population, whose lives are often disproportionately impacted by the impacts of global warming and the actions of the fossil fuel industry. The allegations are centred around the bank’s claim that it supports the goals of the Paris Agreement, highlighting a marketing video in which it boasts of “rising to the challenge” of climate change, “to work together and respond; to develop and support ideas that will help us transition to a sustainable prosperous future – to accelerate clean economic growth.”

In reality, RBC provided US$41bn of funding for fossil fuel projects in 2022, including US$4.8bn for tar sands and US$7.4bn for fracking. “Publicly, RBC spends millions on greenwashed advertising, claiming support for Indigenous rights,” said Richard Brooks, Climate Finance Director at “In reality, the bank is polluting our communities, bankrolling climate chaos and Indigenous rights violations to the tune of billions. RBC’s greedy fossil fuel financing is a clear signal for the need for increased regulation and aggressive pressure from shareholders and customers.”

RBC has said it “strongly disagrees with the allegations” in the complaint, and believes it to be “unfounded and not in line with Canada’s climate plan,” and argues that it must take a measured and gradual approach to achieving net zero targets in order to succeed. 

Vanguard Investments

The Australian Securities and Investment Commission (ASIC) is currently taking action against Vanguard Investments Australia for alleged greenwashing offences. The regulator says it is investigating “misleading conduct in relation to claims about certain ESG exclusionary screens applied to investments in a Vanguard fund.”

ASIC has accused Vanguard of making false and misleading statements and engaging in “conduct liable to mislead the public” by stating that all securities in the Vanguard Ethically Conscious Global Aggregate Bond Index Fund were screened against certain ESG criteria.

The fund was marketed to investors looking for green and ethically-focussed investment opportunities. Investments in the fund were based on an index called the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index, which Vanguard claimed excluded issuers with significant business activities in a range of non-ESG friendly industries, including those involving fossil fuels. ASIC is alleging that Vanguard failed to conduct sufficient research into a significant portion of the issuers of bonds within the index, meaning the fund may not have been as “green” as it claimed to be. “These bonds exposed investor funds to investments which had ties to fossil fuels, including those with activities linked to oil and gas exploration,” said the regulator. ASIC deputy chair Sarah Court said “We know that investors are increasingly seeking investment options that exclude certain industries, and investors need to be able to rely on investment screens to help them make these choices. In this case, Vanguard promised its investors and potential investors that the product would be screened to exclude bond issuers with significant business activities in certain industries, including fossil fuels. We consider that the screening and research undertaken on behalf of Vanguard was far more limited than that being promised to investors, and we consider this constitutes another example of greenwashing.”

Regulatory developments

In the UK, the FCA recently consulted on its Sustainability Disclosure Requirements (SDR) and investment labels. The resultant policy statement was due to be published by the end of H1 2023, but after receiving more than 240 written responses, has been pushed back until the end of Q3 so the FCA can take account of the significant response.

Until now, sustainable financial products (SFPs) have largely been governed by non-financial and voluntary measures. The lack of regulation for SFPs has facilitated fast growth in this area of finance, however, many regulators are concerned it has also allowed firms to exploit the opportunity to market products as “green” to capitalise on growing interest in sustainable finance. In its consultation paper, the FCA said it had “growing concerns that firms may be making exaggerated, misleading or unsubstantiated sustainability-related claims about their products; claims that don’t stand up to closer scrutiny.” To address this, the paper makes the following proposals:

  • Sustainable investment product labels that will give consumers the confidence to choose the right products for them. There will be three categories – including one for products improving their sustainability over time – underpinned by objective criteria.
  • Restrictions on how certain sustainability-related terms – such as ‘ESG’, ‘green’ or ‘sustainable’ – can be used in product names and marketing for products which don’t qualify for the sustainable investment labels. It is also proposing a more general anti-greenwashing rule covering all regulated firms. This will help avoid misleading marketing of products.
  • Consumer-facing disclosures to help consumers understand the key sustainability-related features of an investment product – this includes disclosing investments that a consumer may not expect to be held in the product.
  • More detailed disclosures, suitable for institutional investors or retail investors that want to know more.
  • Requirements for distributors of products, such as investment platforms, to ensure that the labels and consumer-facing disclosures are accessible and clear to consumers.

New EU rules on greenwashing

The European Commission published proposals for implementing its Corporate Sustainability Reporting Directive (CSRD) in June. Though aimed at providing greater clarity for firms operating in the EU, it has been criticised by several industry bodies for not being prescriptive enough. Almost 100 asset managers, banks, ESG fund associations and a UN-backed network of financial institutions joined forces to call for the proposals to be amended. Aleksandra Palinska, Executive Director of Eurosif, said. “The first set of the European Sustainability Reporting Standards, as published by the European Commission on 9 June, fails to address investors’ needs and risks undermining the effective implementation of the EU sustainable finance regulatory framework. The European Commission is now presented with a final opportunity to correct its course and find a compromise that would truly reflect all industry and stakeholders’ needs and better match the ambition of EU climate neutrality targets and the EU Green Deal.” The European Fund and Asset Management Association, the Principles for Responsible Investment, the Institutional Investors Group on Climate Change and the United Nations Environmental Programme Finance Initiative all co-signed a letter to the European Commission echoing the views expressed by Palinska and asking for the proposed rules to be rewritten.

The final rules were published on 31st July and received a mixed reception. “We regret that the investors’ calls to retain key ESG indicators as mandatory have not been heard,” said Palinska. “Investors need specific corporate disclosures to allocate capital in line with EU Climate Law and Green Deal objectives and to prepare their own sustainability-related disclosures. We are counting on the reporting companies to consider these disclosures, elaborated in the joint investor statement, as always material. This is essential for the success of the EU sustainable finance framework.”

US regulation and guidance

In March 2022, the SEC highlighted greenwashing in its Examination Priorities, which outlines activities that the commission will be focussing on in the coming months. The regulator said it would be looking into whether firms were “overstating or misrepresenting the ESG factors considered or incorporated into portfolio selection (e.g., greenwashing), such as in their performance advertising and marketing.”

Task forces: regulators’ weapon against greenwashing

Financial institutions and regulators alike are keen to show willing when it comes to tackling greenwashing. The industry is flooded with member associations and regulatory task forces aimed at combatting the issue. Whether they are a help or a hindrance, remains to be seen.

In March 2021, the SEC launched its Climate and ESG Task Force, focussed specifically on addressing ESG-related gaps and misstatements in disclosures by firms. Recent regulatory actions taken by the task force include charges made against Goldman Sachs Asset Management (GSAM). The SEC claims the firm failed to have any written policies and procedures for ESG research for one of its products; and then failed to follow those procedures once it had established them.

“The order finds that GSAM’s policies and procedures required its personnel to complete a questionnaire for every company it planned to include in each product’s investment portfolio prior to the selection,” said the SEC. “However, personnel completed many of the ESG questionnaires after securities were already selected for inclusion and relied on previous ESG research, which was often conducted in a different manner than what was required.”

The task force also charged BNY Mellon Investment Advisor for “misstatements and omissions about ESG considerations in making investment decisions for certain mutual funds that it managed.” The firm was fined US$1.5m for the transgressions.

More such cases are likely to emerge as new greenwashing rules were proposed by the SEC last year, designed to strengthen the Division of Enforcement’s ability to take action on misleading ESG disclosures. “These rules focus on both publicly-traded companies and investment advisors and funds,” explains lawyer Brad Molotsky in a blog post for Duane Morris LLP. “Under these climate disclosure rules [which are not yet finalised] publicly-traded companies are required to include certain climate-related disclosures in their public filings. Further, these rules will require investment advisors and funds who associate their investments with ESG to provide specific disclosures about how they pursue ESG strategies in their investments.” The new rules are expected to be finalised and implemented later this year.

Task Force on Climate-related Financial Disclosures (TCFD)

Internationally, the Financial Stability Board’s (FSB) Task Force on Climate-related Financial Disclosures (TCFD) provides an internationally recognised framework for voluntary and regulatory climate disclosures across the US, Europe and Asia. In 2017, the TCFD released climate-related financial disclosure recommendations designed to help companies provide better information to support informed capital allocation. “Our disclosure recommendations are structured around four thematic areas that represent core elements of how companies operate: governance, strategy, risk management, and metrics and targets,” says its website. “The four recommendations are interrelated and supported by 11 recommended disclosures that build out the framework with information that should help investors and others understand how reporting organisations think about and assess climate-related risks and opportunities.”

In the five years since then, the FSB has asked the Task Force to continue its work in promoting adoption of the TCFD framework, providing further guidance, supporting educational efforts, monitoring climate-related financial disclosure practices in terms of their alignment with the TCFD recommendations, and preparing annual status reports.

International Sustainability Standards Board (ISSB)

The ISSB was formed in 2021 after COP26 in Glasgow. It builds on the work of market-led investor-focused reporting initiatives, including the Climate Disclosure Standards Board (CDSB), the Task Force for Climate-related Financial Disclosures (TCFD), the Value Reporting Foundation’s Integrated Reporting Framework and industry-based SASB Standards, as well as the World Economic Forum’s Stakeholder Capitalism Metrics.

Glasgow Financial Alliance for Net Zero (GFANZ)

In the UK, the Glasgow Financial Alliance for Net Zero (GFANZ) – also launched after COP26 by former Bank of England governor Mark Carney – comprises 450 financial institutions in 45 countries, with assets of more than US$130tn. GFANZ claims it has “worked to develop the tools and methodologies needed to turn financial institutions’ net-zero commitments into action.”

Greenhushing: the future?

One side-effect of the crackdown on greenwashing in business is so-called “greenhushing.” This is where firms are wary of marketing their ESG credentials in case they come under scrutiny from environmental and political groups, or the general public and media. “With regulatory agencies such as the Securities and Exchange Commission and the Federal Trade Commission taking action against corporations for misleading claims about corporate and product sustainability claims, the fallout related to greenwashing has expanded from reputational risk to compliance risk,” says Nico McCrossan, manager of sustainable finance & ESG at GreenBiz Group. “Greenhushing hasn’t only shifted what corporations are willing to say on their own behalf. It also has affected the dynamic of industry coalitions and alliances dedicated to taking action on climate change. The net effect is that some firms are uneasy to be part of these groups. Vanguard left the Net Zero Asset Managers (NZAM) initiative in December, claiming it wanted to separate its views on net zero from the positions held by NZAM. Asset managers aren’t the only ones who have been spooked by anti-ESG crusades; at least seven insurers left the Net Zero Insurance Alliance this year as Republicans ramped up scrutiny. Among them, a letter from 23 US state attorneys general claiming that NZIA’s membership requirements appeared to violate state and federal antitrust laws.”

“This pendulum-like movement from greenwashing to greenhushing is worrying because it distracts from the true purpose of financial institutions making ESG disclosures,” says Mike Finlay, CEO of RiskBusiness. “It also makes it increasingly difficult for investors and consumers to make informed decisions. As regulators work on finalising rules around greenwashing, firms will need to ensure they are staying on top of their regulatory obligations and are providing products that live up to their marketing campaigns. A recurring problem seems to be firms failing to do enough research into who they do business with and focussing too much on what they can gain from having green credentials, than what they could lose by not adhering to them. Mitigating against greenwashing is the same as dealing with any other third-party or supply-chain risk. In the words of Desiree Fixler: A sustainability officer is not a marketing officer. A sustainability officer should be considered as a compliance officer.”

View a full PDF version of this report here.