Regulatory development and guidance

The report addresses the prevalence of greenwashing in financial markets in Asia and provides an overview of the various forms of regulation and guidance being developed to address it. Regulations are being introduced globally to inform financial institutions of what regulators expect in relation to the management and/or disclosure of climate risks in ESG investments. Some of the key guidelines for Asia include China’s central bank has issued guidelines on environmental information disclosure for financial institutions and its Ministry of Ecology and Environment has issued rules requiring certain high emissions companies and listed companies that have violated environmental laws in the previous year to provide specific disclosures of environmental information and carbon emissions.

Hong Kong’s Securities and Futures Commission (SFC) has updated its circular on the requirements for ESG Funds to disclose information relating to their investment objective and investment strategy, and a revision of the SFC Fund Manager Code of Conduct to require the management, and disclosure of climate-related risks by fund managers. India has reporting standards requiring emissions data from disclosure of climate-related financial risks, which is proposed to come into force in the 2024/2025 financial year.

Types of greenwashing

The report provides a typology of enforcement action being taken by a variety of regulatory bodies and actors against greenwashing across the globe and identifies cases at the greenwashing frontier. These include “transition-washing”, greenwashing via offsets, and greenwashing claims brought by competitors.

Recommendations

The report provides key recommendations to guard against greenwashing risk. These are summarised under the ‘five pillars’ as follows:

• Screen your green: Scrutinise the accuracy and credibility of any green statement;
• In good and green faith: Be transparent about how green objectives are integrated into the financial product and/or its financial objective;
• Walk your green talk: Ensure the company or fund’s green image is consistent with the internal actions of the company or fund and their actions in relation to third parties;
• Observe the changing shades of green: Expectations and regulations are rapidly evolving, so monitor developments in relevant jurisdictions;
• Be alert to green duties: Know your legal and fiduciary duties to investors, beneficiaries, and stakeholders.

Case studies

The report provides case studies of how institutions can put these recommendations into practice. INVESCO has created an ESG investing nomenclature to enable investors to express their values through a spectrum of approaches and requirements in their investments. To create greater transparency for investors, Invesco’s ESG nomenclature provides five different ESG strategies. abrdn has a focus on training to ensure the long-term success of its sustainable investing approach, with a particular emphasis placed on greenwashing, so that staff understands what it means, its potential implications and how to avoid it.

Conclusion

By addressing issues head-on, this report aims to assist the Asian financial industry in identifying greenwashing risks within their own organisations and those they invest in, and help identify relevant considerations for mitigating those risks.