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Greenwashing in the spotlight - climate and governance considerations for professional service firms

Understand how greenwashing impacts professional service firms, the evolving regulatory landscape, and key strategies to manage risks effectively.

23/10/2024 · 4 minute read

Recently, regulators and prosecutors in multiple jurisdictions have taken high profile action against potentially misleading “green” statements and disclosures made by leading companies in the professional services sector. These actions have had significant financial and reputational consequences.

For professional services firms, competition is fierce and having a good reputation is key. As a result, the negative impact of greenwashing accusations constitutes a risk that can have significant legal and financial repercussions. With this in mind, do you know how greenwashing could affect your organisation’s risk profile? Are you aware of the specific actions you should consider managing this risk?

Greenwashing – a growing concern

There is currently no legal definition of “greenwashing” in the UK. However, according to the UK Law Society the term is used to describe untrue or misleading statements made about the environmental performance or impact of a business, product or service.

This issue is becoming more critical to professional service firms due to the following developments:

  • Increasing disclosure of environmental, social and governance (ESG) credentials
  • Increased regulation of ESG disclosures
  • Greater public and investor attention on green credentials
  • Increasing customer awareness and preference for sustainable alternatives
  • Greater availability of data that could disprove the claims made by organisations on ESG issues

What is the greenwashing regulatory environment?

The greenwashing legislative landscape is evolving fast. EU regulators are currently setting out a policy and data framework that will provide a consistent approach for national supervisors and regulators. This will allow them to supervise sustainability-related claims by conducting assessments and addressing instances of greenwashing.

In the UK, the Financial Conduct Authority (FCA) has played a leading role by introducing a new anti-greenwashing rule, which came into effect 31st May 2024. This highlights to all FCA authorised firms that sustainability-related claims about their products and services must be consistent as well as fair, clear and not misleading. This, in turn, enables the FCA to challenge firms they consider to be making misleading sustainability-related claims. It is one part of the November 2023 sustainability disclosure requirements (SDR) and investment labels regime (PS23/16).

Key considerations for identifying and managing greenwashing risks

Greenwashing may not be intentional. Firms are particularly susceptible to data and methodological gaps and errors that arise during carbon and climate modelling and analysis. They are also vulnerable to the actions of third parties in the value chain. This makes the implementation of appropriate risk management, governance and oversight particularly important.

A good first step to managing this challenge is a greenwashing risk assessment. This should consider the following questions and issues:

  1. Do we have data to substantiate the statements we are making? For example, can we provide evidence that our products/processes are net zero?
  2. Are we conducting diligence across our supply chain?
  3. Are we confident that the data and methods we have used are verifiable and robust? Have we effectively explained and communicated them?
  4. The consequences of needing to restate numbers is considerable. It is therefore critical that a carefully selected and justified approach/model is used from the outset.
  5. Have our statements been audited and/or critically reviewed? Has an independent party checked our statements?
  6. Would it make sense to align our approach with a well-regarded voluntary reporting framework to ensure we are visibly following an accepted approach? Such frameworks include: BCorp, SBTi and CDP.

The importance of giving good advice

Professional services firms also need to consider what advice or services they are providing in this space. For example, many are advising on climate-related disclosures or advertising claims. Firms giving this sort of advice will need to consider the situation when that advice is called into question, or when a negligence or breach of contract claim follows.

One example of this could be a consultancy that provides modelling to help its clients measure their carbon emissions for both action and reporting. A small miscalculation in the model used could create inaccurate results that could lead to a client unknowingly reporting false data.

Similarly, professional service firms could face “second hand” greenwashing allegations if they make claims about their own “good” ESG credentials but work for clients who do not share these same values or standards. This would open them up to allegations that they are enabling, and profiting from, other companies with “poor” ESG.

Safeguarding the future

Sustainability is now firmly on the agenda for consumers and investors concerned about climate change. Stakeholders are becoming more informed and vigilant. As a result, greenwashing poses significant risks for professional services firms. However, with effective risk management strategies these risks can be mitigated. By promoting genuine sustainability and ensuring transparent environmental claims, firms can comply with regulations, protect their reputations and safeguard their futures.

For further discussion on any topic raised above, please reach out to your Marsh contact or get in touch.

Our people

Rory Cobb

Rory Cobb

Marsh UK Industries - Professional & Business Services Industries Leader

  • United Kingdom

Dr. Beverley Adams

Dr. Beverley Adams

Head of Client Engagement and Consulting Director, Strategic Risk Practice, Marsh Advisory

  • United Kingdom

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