The increasing pressure – both regulatory and social – concerning ESG reporting heightens the risk of a phenomenon known as "greenwashing." This practice involves organizations attempting to portray their activities as more environmentally friendly and socially responsible than they are. They hope this will earn them a reputation as a sustainable development-oriented organization, attracting customers and investors without a fundamental contribution of resources and commitmaent to this area.
In practice, greenwashing can manifest as whitewashing information, presenting actions as more beneficial to the environment than they are, or focusing on one aspect of sustainable development while neglecting other significant issues. For instance, a company might promote its initiatives to reduce carbon dioxide emissions while ignoring controversial social practices or shortcomings in corporate governance.
The new CSRD standards allow for better control of this threat – they are standardized and cover the full spectrum of activities, not just selected aspects. Thus, on the one hand, companies obliged to disclose information about their environmental impact, social practices, and corporate governance must be prudent to ensure their reports accurately reflect their actual commitment to sustainable development. On the other hand, by submitting meticulous reports, they distance themselves from the threat of accusations of greenwashing.
To realistically avoid allegations of greenwashing, financial institutions must approach ESG reporting with honesty and transparency and ensure accountability – i.e., be able to prove that the declared values are consistent with reality. It is crucial to consider all relevant aspects of sustainable development, present real progress and proposals for corrective actions, and set measurable goals consistent with the objectives of the CSRD Directive. Additionally, openness to dialogue with stakeholders, including customers, investors, and the community, can contribute to building trust and preventing the risk of greenwashing, allowing financial institutions to genuinely contribute to creating a positive impact on the world.