A] Prelude
For more information on pension systems, risk and coverage, feel free to visit our dedicated webpages:
https://expatpensionholland.nl/global-pillars-systems
https://expatpensionholland.nl/global-investments-risks-0
https://expatpensionholland.nl/global-social-security-coverage
For even more information feel free to visit the following external sites:
https://www.sustainalytics.com/esg-research/resource/investors-esg-blog/what-is-greenwashing-and-how-can-investors-reduce-the-risks
https://www.robeco.com/en-int/glossary/sustainable-investing/greenwashing
https://www.pggm.nl/en/blogs/greenwashing-scrutiny-on-sustainability-claims-increasing/
B] The Issue
Greenwashing, the practice of disseminating disinformation to present an environmentally responsible image, has become a significant concern for pension trustees. There have been some high-profile allegations of greenwashing in the pension sector in the press lately.
For example, in 2023 it was found that over 160 pension funds had investments of more than $4.6 billion in fossil fuels majors despite having a green label or claiming to invest in a low carbon economy.
A consequence of greenwashing, and especially high-profile examples like the above, in the context of pension schemes, is that it undermines the credibility of environmental, social, and governance (ESG) investing. The Association of Investment Companies reported in October 2023 that ESG investing was declining in popularity as fears of greenwashing grew.
C] The Details
In a 2021 survey, 48% of respondents agreed with the statement “I’m not convinced by ESG claims from funds”. This figure rose to 58% in 2022 and 63% in 2023. It is, therefore, important to ensure reliable and robust information is provided so that receivers of this information have confidence in their investment choices.
Greenwashing (and more recently, climatewashing) has become a buzz word in the pensions industry and the wider financial services sector. Which is in play across different sectors with their disclosures, environmental claims and on how to manage risks. As a result, we have been able to witness a rise in prominence of greenwashing related concerns.
We have seen that consumers, regulators and highly motivated and organised NGOs are decision-making and calling out dubious environmental claims. This means that companies and organisations are now facing a range of challenges that flow from a greenwashing accusation or action including litigation, regulatory scrutiny and enforcement and the associated reputational risks.
D] Lawsuits
Dr Daniel Summerfield, Director of ESG comments that “we are seeing a notable increase in the number of lawsuits being filed around the world which are centred around allegations of greenwashing and climate-washing. As a result of the ever-changing political and regulatory contexts, this trend will continue unless and until regulators agree on the standards expected of companies in disclosing their corporate climate commitments. Pension funds and investors will also need to assess their reporting carefully with an increase in legal and regulatory actions against them as their commitments, actions and disclosures are, in turn, now subject to greater scrutiny.”
E] Pension Trustees
Trustees are particularly vulnerable to greenwashing risks. This is partly because of the reporting requirements, such as those related to the Task Force on Climate-related Financial Disclosures (TCFD).
It is against this increased reporting and enhanced regulatory landscape that there is increased scrutiny in relation to what is being said and a growing interest can be observed from climate action groups and members in this area. This highlights the importance of accurate and transparent reporting. It is notable that AI can facilitate the scrutiny of reports and statements, making it easier to identify potential discrepancies.
An increased focus on greenwashing and ESG disclosures is consistent with wider regulatory developments in the UK, including measures recently introduced by the FCA such as the anti-greenwashing rule and the Sustainability Disclosure Requirements (which introduce sustainable investment labels for investment funds as well as additional disclosure obligations).
However, trustees also need to be alive to the possibility of greenwashing in the information they themselves are receiving. Trustees may rely on such information in making their own disclosures and as such they should ensure that they are equipped to deal with this issue themselves as receivers of information.
F] Finally
The Pensions Regulator acknowledges the challenges that trustees face: “Integrating climate change into trustee plans and decision-making structures will pose new and interesting challenges. The world of green finance is moving incredibly quickly and debates around divestment versus engagement, greenwashing, standards and metrics are real and complex. Savers are increasingly showing that they too are interested in understanding where their pension savings are being invested and the impact of these investments.”