The Fraud Cast: Are greenwashing investigations on the rise?

Transcript

Kristen Pisciotta:

Good morning, everyone. Thank you so much for joining us. My name is Kristin Piscata. I'm a partner in PWC's Restructuring Forensics Practice, and a very warm welcome to the latest webcast in our Broadcast series. As a quick reminder, our last broadcast focused on the new failure to prevent offense, which had been included as part of the Economic Crime and Corporate Transparency Act. The recording of that session can be found on our Broadcast along with all of our previous sessions. So please do have a look at these. I'm joined on today's broadcast by a panel of experts who are going to be talking to us about greenwashing and what companies should be doing to safeguard themselves against the issue. We believe that now is a particularly good time to be speaking about greenwashing, given the increased regulatory scrutiny and the changes to the sustainability reporting landscape, including the corporate sustainability reporting directive, and the FCA's anti greenwashing rule. During the webcast, we're going to be using the web x polling system and we'll ask you the audience a couple of questions so that you can share your thoughts as we go through the session. We also love to hear any questions you might have for the panel, so you can ask these by typing them into the box that should be appearing on your screen. The broadcast today is going to be recorded so take a look at the recording on our web hub after the session, and please do feel free to share the link with your colleagues. Before we get into the details of greenwashing, you'll notice that today our panel is comprised of all females. We wanted to highlight the GIR Women in Investigations Conference, which is taking place tomorrow in London. This is an event that we're proud to sponsor again this year, and so I'm delighted today to be joined by an all female panel of experts on the topic of greenwashing. With that, let me introduce you to our panel members today. I'm joined by Laura Middleton, Laura Ford, and Gemma Jones. I'll let the panel introduce themselves. Laura Middleton. Shall I come to you first?

Laura Middleton:

Thanks, Kristen. I'm Laura Middleton. I'm a director in our forensic Services practice here in PBC, and my practice focuses very much on fraud prevention and investigation, but particularly focused on non-financial issues and those that arise through sustainability reporting.

Kristen Pisciotta:

Laura Ford.

Laura Ford:

Thank you. I'm Laura Ford. I'm a partner at Dale Piper. I lead the corporate crime Investigations and Compliance Practice for the firm in the UK. I've been working in the investigations and compliance arena for the last 15 plus years, particular focus on bribery fraud, money laundering, and now moving much more into the realms of modern slavery, ESG matters, human rights, and now the focus on climate. Go. Thanks for joining us.

Gemma Jones:

Hi morning. Thanks for having me. I'm Gemma Jones. I am a director in our sustainability practice here at PWC. I support clients with their sustainability ambitions, goals and processes from strategy to reporting. I work predominantly with financial services clients and have traditionally actually spent 20 years in financial services across pensions banking and investments.

Kristen Pisciotta:

Great, Thank you so much all for joining us this morning. Let's kick things off. Why don't we start with talking a little bit about what exactly we mean by green washing as well as green hushing? Laura Middleton, can you kick us off?

Laura Middleton:

Absolutely. It's probably important to note that there isn't a formal regulatory definition of green washing at the moment. But really what we're looking at is when organizations make statements about their sustainability credentials that give a misleading impression about how sustainable their products, their services, or perhaps even their aims are in terms of improving climate change. What we're seeing at the moment is that this is a very broad church and not necessarily. All greenwashing isn't necessarily fraud, where it strays into criminal and the fraud arena is when there is a knowing and deliberate intention to mislead stakeholders by making those statements. What we're now also seeing, as you say is green hushing, and that's really where companies are concerned about being accused of green washing and they're actually minimizing the amount of statements they're making and the claims they're making about their sustainability credentials. That might not sound like such a serious matter, but it very much affects transparency, and it's contributing to perhaps delays in the pace of change around sustainability. We don't want to see green hushing or greenwashing appearing.

Kristen Pisciotta:

Excellent. Thanks Laura. We're going to jump to the first polling question. Hopefully a question should be appearing on your screen very shortly. The first question is how familiar are you with the legislative regulatory and control environments that apply to your organization with respect to greenwashing. The options you have to choose from, I fully understand them, I partially understand them, or I am unfamiliar with these. While we are waiting for the poll results, I'm going to turn to Laura Ford. If you could tell us a bit about some of the current legislation that's in place for businesses, that would be great.

Laura Ford:

Sure. There are increasing amounts of guidance regulation legislation in this space. Typically with a consumer protection slant. So we've started off in years gone by, speaking from a UK perspective, with the consumer protection from unfair trading regulations, the advertising standards Agency CAP code, moving more recently into much more climate focused rules and regulations. So we've got the CMAs, Green Claims Code. We've got the FCA anti Greenwashing rule, which I think will speak a bit more about shortly. So getting much more into the really focused greenwashing space with more recent regulations. EU is absolutely leading the way on this. We got the Corporate Sustainability Reporting Directive. Again, I think we'll hear a little bit more about the EU Taxonomy. Yesterday, we heard from the EU that the negotiations will start advancing on the Green claims Directive. Getting pretty busy in that space. Some jurisdictions take a much more command and control approach to it. So the French legislation, for example, goes so far as to require publication of the emissions balance sheets of advertised products, they're really getting down into those brass tacks. All of that really has a civil focus. There are some criminal offenses under the consumer regulations, but predominantly with a civil focus and there are vast amounts of litigation. Flow in a greenwashing sense. I think what's really interesting to us, and I think Laura is seeing the same is when we start seeing it move more towards the criminal arena. When you do have that dishonesty that Laura was talking about, then you're looking at the Fraud Act. We've got the Economic Crime Act that you mentioned in your opening Chris and the new failure to prevent fraud defense. Wherever you've got fraud, you've got money laundering. You can see that the scale of potential exposure starts to get quite extreme.

Kristen Pisciotta:

Thank you, Laura. We do have the results of our first polling question in. As a reminder, the question was, how familiar are you with the legislative regulatory and control environments that apply to your organization with respect to greenwashing. Unsurprisingly, I think, 61% of you have said, I partially understand them. 3% said, I fully understand them, and 6% said I am unfamiliar with these. Gemma, are you surprised by these results, and what do you actually seeing in practice?

Gemma Jones:

Yeah. No surprised at all. I think as Laura and Laura have already outlined, there is a plethora of expectation and there is the regulatory expectation, there's legal expectation, there are your stakeholders expectations, and I think we also need to keep in mind that stakeholder but who'll come back to it. But as Laura noted, we've definitely seen an up tack the FC green Washing Real has within Financial Services Company lead to quite a lot of activity and companies going back and lifting up the bonnet to have a look at what is in existence there. I think the checkiness, as we've outlined here is that isn't a formal definition. And I think that makes incredibly difficult when you think about, particularly large scale organizations who will have multiple communications or ways and they'll have products, they'll have corporate disclosures, they'll have entity disclosures, how do they manage and make sure those are fit for purpose. Then look across that interoperability of what's happening in Europe, the UK, America, particularly if you're a global organization and really thinking about what those expectations are and how you manage that to bed it into the process. I think It's in some ways helpful not to be too specific, but also very unhelpful. But it does put the onus and this is what all of the requirements really leads back to for organizations to think about what's genuinely material to them, what is it they're trying to achieve, and how do then make sure that their organization is structured to deliver on that. We're definitely seeing that it's bringing to the surface some of those really tangible things, which I think is really promising actually and very encouraging because it helps people to think through that. Then if you get to the lens of going down the criminal route, the more established other processes are the easier it would be to be able to identify that as well.

Kristen Pisciotta:

Excellent. Thanks, Dema. It's time for a second polling question. This should hopefully be appearing on your screen. The second polling question is how concerned are you about the risk of green washing related incidents occurring in your organization? The options are, I am very concerned, I am somewhat concerned, I am not concerned. While we are awaiting the results of this second poll, Laura Middleton, can I come to you to get your views on the types of probes we're currently seeing and how we might expect these trends to change?

Laura Middleton:

Yeah, absolutely. It's quite broad in terms of what we're seeing at the moment, but a couple of the key themes. Are one relates to the consumer protection that Laura was mentioning. We are seeing a number of investigations and fines coming from various consumer protection entities. Those are particularly focused around the claims that organizations are making, either in their advertisements or sometimes associated with their products themselves. It's normally around either being quite vague about it. We're seeing examples where something might claim to be made of a recycled product and actually, it's only quite a small percentage. You can see that maybe in the small print, but the claims that are made overall are misleading to consumers. Then we also see sometimes where adverts focus on particularly positive behaviors, but don't look at the the wider picture as a whole. That is also seen by some of these consumer protection organizations as being an example of greenwashing. The other trend we're seeing in terms of activity from regulators tends to be focused on the financial services sector and in particular around asset managers. We have seen a number of fines arise in this space, particularly focused on how those products are being presented. Are they ESG products or not? What does that mean and how has that been followed up? Think though it's important to highlight that the quantum of the fines and penalties associated with that are nowhere near the magnitude we're seeing for issues like bribery and corruption right now, and that might change in the future. Looking forward, lots of different areas, and I'm sure everyone will have points to add in on. But for me, one of the key things is, I think 2030 is going to be the first year that a not insubstantial minority of companies will have set as their net zero target. We're probably likely to see of the next few years more accusations of greenwashing as companies have maybe not made the action that they said they were going to do. But also that pressure of that target that's been publicly shared will likely drive more fraudulent behavior in terms of what people are actually reporting and declaring that they've done.

Kristen Pisciotta:

Thanks. Laura Ford, do you want to tell us a little bit about some of the issues that you're seeing in this area?

Laura Ford:

Yeah, sure. I think it's interesting to highlight that none of this is really new though there is significant focus on it now. Fraud misrepresentations in relation to climate related matters. Have been around for a long time. Just a couple of examples. In 2019 in the UK, two individuals convicted and sent to prison for 13 years and six years respectively, pretty hefty time frames for selling effectively junk carbon credits to the public. That's already a pretty established means of criminals, effectively generating funds in the climate space. One of our new partners at DLA Andrew Saki was formerly at HMRC heading their Anti Fraud Unit. And when he was there, he led operation Amazon, which related to conduct dating back to 2010 in relation to eco driven investment scheme for reforestation in Brazil and China. Obviously tax benefits arising from those types of investment, but actually it was found to be effectively a tax fraud, 20 million pounds tax fraud. T individuals imprisoned in 2017. That type of thing has been around for quite a long time. I'm sure our audience watching this will think, well, of course, not a criminal enterprise, I'm not in a criminal enterprise, we wouldn't engage in that type of activity. But as corporates now working towards their 2030 dates or whenever it might be, much more engagement in the voluntary carbon markets, purchase of carbon credits to offset their emissions. The need to make sure that those carbon credits are genuine, they can stand behind them. The imperative is increasing massively. And the more as the climate crisis deepens, I think that will start to become more of an integrity issue, companies making sure that the offsets they are using do have integrity, that they are genuine, that they're real, and that they can stand behind them. And so we spoke a bit about CSRD, but also CSD, the due diligence Directive. And we'll start to impact that as well as people have greater obligations to understand exactly who they're doing business with and in this particular instance, the carbon credits that they're buying and then using to offset.

Kristen Pisciotta:

Thank you. The results of our second polling question are in. As a reminder, the question was, how concerned are you about the risk of greenwashing related incidents occurring in your organization? I am very concerned, came in at 16%. I am somewhat concerned 58%, and I am not concerned 26%. Can I just ask the panel, are you surprised by these results?

Gemma Jones:

No. Is the honest. I guess to what's just been covered here. I think it would be remiss not to be somewhat concerned because there isn't a clear definition. The processes aren't mature yet. People's understanding is still evolving, and therefore, in some organizations, if you're very small or you're very equal, then that's probably easy, but even the data that you would use to back up your claims is still maturing. That's not even when it needs to be. I think what we've already discussed around people made targets for 2030 with good intentions and not necessarily for knowing that it was going to be really complicated and there wasn't a clear path for that. I think the differentiator that we will see now is the organizations who are really taking that seriously, putting budget resources process improvement behind that versus those who said, well, I just done it because I felt I ought to, and I think that would be really interesting. I think internally, people will lot of things to your point around due diligence, how much due diligence is being made on some of these sustainability claims, we would have very in depth processes for a health benefit claim or a safety claim, and sustainability claims just don't have that level of process, which for me is where that that's somewhat concerned would be your intent can be right. But actually, how do I really know that I'm fulfilling it in the way that I ought to with the processes? I know you guys.

Laura Ford:

I think that more than just over a quarter are not concerned. I'd be really interested to know if that's because they've got fantastic compliance programs in place and they're planned brilliantly, and they know they've got good controls or There's a view that it's not an issue or perhaps that it's a business that just wouldn't be exposed to the risk of greenwashing somehow.

Kristen Pisciotta:

Yeah, I was surprised by the 26%. I'm not concerned. Laura?

Laura Middleton:

No. No, I'd absolutely agree. I think as well as some of the issues we talked about about just how easy it is to inadvertently greenwash. There's also the challenge of we've got more and more people who are now being rewarded on some of these sustainability matters. Increasingly we've seen bonuses linked to certain sustainability KPIs. It's not new, but it's certainly increasing. There are more drivers there, not just for some of the slightly vaguer areas, but also for deliberate behavior, and it wouldn't be a broadcast if we didn't talk about that thing as well. Trying of. There's definitely an increased driver there.

Kristen Pisciotta:

Yeah. Thank you. And thank you to the audience for your responses there. Gemma, Can you talk to us a little bit about how companies should be responding to the increased risk of greenwashing?

Gemma Jones:

Yeah, Sure. I guess, to that point, the really difficult issue here is a lot, it's not intentional. You can gen greenwash. I think that's where the vast majority of people sit in that unintentional green washing state, which I think is just that understanding of what does it really take to be a green product or a sustainable product. But fundamentally, I'm going to strip it really back and make it simple and then I'll give a bit more color to it. Really fundamentally say what you do and do what you say is really the principle. Actually, if you look at something like the FCA's antire moot it builds on fair clear or not misleading, which is a very standard process. It's around being able to identify, is what you're saying accurate? Is it balanced? Where we've seen it go wrong if you're invested 2% into green and 98% into brown. That's where you see that down. Being really honest and open and clear and balanced around it, nobody is asking companies to completely tilt their organization. That's not the ask here. They're being asked to be clear about what they're doing. Think about your strategy and your ambitions. Are you clear on what it you're trying to achieve? Is everybody in your company clear on that and understand that. Think about your processes and your compliance and your oversight and how that works, how you feed through into culture. If you haven't done an anti green washing review, I think that's a very sensible place to start just to go back through and lift the lids and go left to right on that. Then think about your accountabilities, who's accountable within your organization for which element of it and wrap around that in terms of education. I think being able to stay to some of those principles and that thinking around are these processes aligned with other processes? If you're a finance company. Do you have similar level of diligence around sustainability disclosure as you do for financials, I products similar to health and safety as I have articulated earlier.

Kristen Pisciotta:

Thanks, Jemma. We're going to do audience questions at the end, but we have had a question come in that directly relates to what you're speaking about. The question is, what do you think is the very first step a company should take to mitigate the risk of greenwashing? Is it the company wide greenwashing review that you just mentioned? Is that what you would suggest?

Gemma Jones:

Yes. Probably, I think that is the first step because I think well, It is. But the first step of that process would be really clear on what it is you're trying to achieve from a sustainability perspective. In materiality assessment, it comes up in corporate sustainability reporting directive. I will be part of that requirement if you fall into that category, but really understanding what it is you're trying to do. That sounds really simple, but actually in reality, you don't see that happen that often. People feel that they have to do lots of things, but being clear about that and then yes, I would say that an anti gmoion review is imperative given the landscape to secure your reputational risk.

Kristen Pisciotta:

Thank you.

Laura Ford:

Just to add on that. Kristin if I may, we spoke earlier about the offensive failure to prevent fraud. Business sounds like your latest webcast was on that, there'll be some good baseline for anybody who isn't familiar with it. That we'll look at fraud risks across the business, but making sure that it picks up the risk of greenwashing there. Similarly, other climate solutions engagement and climate action, making sure that's picked up in that more business wide risk assessment as well.

Kristen Pisciotta:

That makes sense. Laura Middleton, do you have anything to add to that?

Laura Middleton:

No, I suppose just building on Laura's Point and actually a little plug for us on our website. We've spent some time thinking about an ESG fraud taxonomy, and it's just incredibly broad, I think different ways that this can manifest and just having those tools and less just to work through to think about the broader fraud risks, which we'd encourage in any type of fraud risk assessment, but I think this is an emerging area that needs to be thought about broadly and wrapped into those processes.

Kristen Pisciotta:

Thank you. We're now going to move to our audience que portion of the panel. The first question that has come in is, should we be very, underlined, very concerned about the risk of greenwashing. Who on the panel would like to take that first?

Gemma Jones

Yes and no is my answer to that. I'm going to come from a sustainability lend rather than necessarily the regulatory. I think back to that point it's often not intentional. I think you should be very concerned if you think that you're deliberately trying to mislead people or making huge claims, but the reality is most people who are doing that probably aren't going to be concerned at all because it's intentional. I think for most organizations, it is an issue, but it's really back to it's building this into your existing processes. I shouldn't be this add one thing. Actually, if you go through and put into your processes, how you're dealing with it, greenwashing will be a risk. But I think everybody knows that there's a long road in a journey to go ahead. I think if you're clear on what it is you're trying to do in the processing, and you're able to articulate why you've done and where you've got the data to back that up, you shouldn't be overly concerned as long as you're doing everything that's expected of you. But clearly, you do need to think about whether or not you are trying to deliver it on your because I think fundamentally trying to deliver on it is the key thing here that will stand you in good stead.

Laura Ford:

Yeah. I think really just being aware of the risk and make sure that you're doing things to mitigate it is the key, and if you are doing that, then no need to be overly concerned. There's always a bit of a balance, maybe or at least to be aware of the issue that when we are trying to advance sustainability actions, then we start talking about corruption and fraud risks, actually that you're not putting people off from undertaking those actions because of the risks that underlie it, but it's just about having that appropriate control environment that protects the business and the individuals in.

Kristen Pisciotta:

Okay. We've had a few questions come in about regulators. The first of these is, in your opinion, what can regulators do to help companies if they can help at all? How do you envisage your work with the regulators to progress, including failures in corporate reporting disclosures and assurance? Laura?

Laura Ford:

Yeah, sure. So The bit of a topic close to my heart, towards the end of last year, at DLA, we published a report with the Granth and Research Institute on climate change on corruption risks and climate solutions. In it, we set out some recommendations for various different entities, governments, and so on, including regulators. The core bit in relation to regulators is just their help in gathering helping with the understanding of the legislative environment, but then bringing that down to really solid guidance that people can apply across the P. When we talk about there being no set definition, having that regulatory go in. We've got it from the CMA. We got it from the FCA now. Obviously, a UK focus there. But then of course, it's not just a national issue. Someone mentioned earlier about the clients and businesses watching this will be international organizations, making sure that they have a standard set of rules across the piece that they can try and abide by it and make it easier to make sure that they are doing the right thing across jurisdictions. That's the key thing that we can get from the regulators, and then governments making sure that they are well funded, robust, able to apply sanction where they need to and that's supported.

Kristen Pisciotta:

Continuing on the theme of regulators, I am going to come to our last question. So what do we think the regulatory landscape will look like in five to ten years in relation to greenwashing?

Gemma Jones:

Yeah. It's a great question and super interesting because I think I look at it through the lens of reporting really over five, ten, 15 years, I see this convert. In the short term, we're going to have this explosion and people feeling very confused and overwhelmed and some much stretch, try to deal with CSRD, and TCF and all these various other disclosures. Over time, I think that those will start to merge, and then you'll have more of a front end and back end, similar to how you would have for other parts of your business because after all, it should be strategic. I think the regulators are trying very hard to ensure that it's not vastly different. Actually, we talk about how different they are, but if you look through all of them, they're 80% similar to 20% different and they're working really hard to even more convergent, which I think is really important. It goes back to that point of the number one thing for companies to do is to be strategic about this. What we see sometimes is people trying to deal with it on a case by case basis dependent to comply. I think that will wear you out and be very inefficient because what they're all fundamentally asking for is strategically, what is it you're trying to do and how have you structure yourself to deliver on it. So I think that we'll see the regulation come. In some ways somewhat ironically, I hope that the regulator bears a bit more teeth. To the point you made earlier, Laura, the fines aren't as substantial as they are for other activities, and that can lead to some interesting dynamics around prioritization. But also, I think we're in a stage at the moment where no one's really quite sure what it needs to be, but if the regulator can be a bit clearer on what it definitely doesn't need to be, I think that's still always very helpful for people maneuvering through. Yeah, still lots of change, I think for the short term, but in the longer term, I think we'll see it stabilize.

Laura Middleton:

I think we might even see when we're looking at wider investigations of things like bribery and corruption, just seeing some consideration of risks around greenwashing and other ESG related corruption woven into those investigations, so it would be more business as usual for regulators as well as for companies hopefully.

Kristen Pisciotta:

We're almost out of time. Can I just come to you guys for any final thoughts or closing remarks? Anything else you want to say?

Laura Middleton:

I think from my perspective, back to where I started, just thinking about how broad greenwashing is and we focus quite a lot on false representation, but that can cover quite a broad range of topics, so it isn't just deliberately misstating a particular claim. It can be being particularly vague. It can be talking about one thing, but not disclosing something else. I'd encourage people to think very broadly when they're thinking about greenwashing risk.

Kristen Pisciotta:

Laura

Laura Ford:

Thanks, Kristen. For me, it would be just to recognize that greenwashing absolutely is an issue, but there are a raft of potential areas that businesses can get tripped up in climate solutions. Thinking about other risks that may arise around bribery and corruption that Laura just mentioned, money laundering through to risks that arise in a lobbying context or conflicts of interest, through to failure to obtain prior informed consent for projects. Taking a full solution approach to it and really focusing on all the risk areas that can arise.

Kristen Pisciotta:

Thanks, Laura. D.

Gemma Jones:

Yeah, Greenwashing is a risk because fundamentally it stops progress. The illusion of progress, I think is more dangerous than understanding there's none at all. But please don't then move into green hushing. We touched on it earlier and Green hushing, I think is actually for me a bit more of a risk because that sharing of knowledge and understanding is the only way we're going to make progress and we need collaborative progress. Greenwashing is a risk, but so too is green hushing. Please take some time to have a look at your processes get comfortable with your strategy. Hopefully we can all keep continuing for the ultimate goal.

Kristen Pisciotta:

Amazing. Thank you all so much for joining me today. Really appreciate it. And thank you to the audience for your great input during the session, through your questions and the polling responses as well. Please do be sure to visit the Broadcast web hub, and don't forget to keep an eye out for future broadcast sessions, and let us know if there are any topics that you're particularly interested in hearing about. Thank you so much. We look forward to seeing you all again soon.