Greenwashing: Can It Be Regulated Away?

The issue of greenwashing is critical as it provides ammunition to critics of efforts to stay on a 1.5°C trajectory by 2050.

I have been digging into what is happening in Europe, where we have both the Net Zero Banking Alliance (a UNEP sponsored, industry-led initiative that puts member banks in a funnel leading from vague promises to portfolio analysis and then firm commitments, board-level reviews, and 5-year objectives from 2025 on) and the European Green Deal.

The European Green Deal includes three pieces of regulation (oops, Americans don’t believe in regulation): one on benchmarks used to assess “green” products and services (answers the question “What is an ESG benchmark and what criteria must it meet?”); one on green taxonomy, which defines six priorities for European economies to fight climate change and determines which activities contribute to this fight, thereby enabling industries and investors to target appropriate areas if they want to make their own businesses greener or invest in green activities; and the Sustainable Finance Disclosure Regulation, which applies to all actors in the financial sector. This last piece of regulation sets standard requirements for reporting on potential climate risks caused by investments, or threats of climate risk on investments; it also sets requirements for reporting on the level of investment of companies of a certain size in green developments.

How far does America have to go to create such a comprehensive system? Without dictating where investments have to go or what companies have to do, these European regulations are creating a climate in which companies and financial players have a strong interest in thoughtful green investing.