As environmental, social and governance (ESG) strategy and performance come under ever closer customer, investor and regulatory scrutiny the likelihood of ethical lapses and fraudulent activity being uncovered is rising. While some ESG misconduct, and so-called ‘greenwashing’, can stem from genuine errors and misunderstandings, any false claims or misleading statements could impact on share prices and open the way to criminal and regulatory sanctions. Even if not, the reputational damage can be lasting and severe.
Drawing on decades of experience in both sustainability and fraud prevention, we’ve developed a new taxonomy to help you guard against these new and emerging risks and respond quickly and decisively to threats.
Spotlight on Greenwashing
ESG fraud and ethical risk is a broad topic with many diverse components. We believe greenwashing to be one of the most prominent and important, because it comes in so many different forms, is easy to commit and has a potentially high impact. The ESG fraud taxonomy draws out some of the activities we feel to be fraudulent. But there are also other types of greenwashing which while not necessarily fraudulent, still open up reputational risks:
- Ambiguous: Generalised, unspecific claims, often 'buzzword' rich, that make validation or refutation difficult
- Misleading: Claims that are technically correct and appear positive but are not ‘in the spirit' of ‘E’ or ‘S’
- Narrow focus: Promoting positive actions whilst ignoring negative impacts elsewhere
- Best of a bad bunch: Promoting negative actions as positive by virtue of the fact that the alternatives are worse
- Softening standards: Working to reduce or undermine ESG-related standards and certifications, thus 'lowering the bar'
- The halo effect: No explicit statements, but using context, imagery and associated marketing to give the impression of 'E' or 'S' benefit
ESG Fraud is a broad and diverse topic that includes, greenwashing; labour exploitation; and carbon credit market abuse, among many others. Find out more by downloading the full taxonomy.
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