Are your climate-risk disclosures exposing you to potential ‘greenwashing’ claims?

You may well have seen the recent headlines regarding the resignation of the chief executive of Deutsche Bank’s fund arm, DWS, in the wake of allegations that the company misled investors about its ‘green’ investments’[1] – a case of ‘greenwashing’[2].

So, what do we need to do to make sure that the companies we work for or advise don’t suffer the same reputational damage and consequences?

To explore this, let’s start by considering an episode from Australia’s recent history.

The Australian Labor Party was going to win the 2019 Australian Federal Election according to the pollsters. So when the Liberal-National Coalition was returned to government, there were deep questions raised as to how the pollsters got it so wrong.

The post-Election inquiries concluded that this was a case of ‘polling failure’ caused by the continued use of sampling methodologies of the past without appropriate adjustment for current society behaviours and attitudes. Times had changed, and the sampling and engagement techniques of the past were not appropriate to generate accurate polling intentions in today’s environment.

This highlights two key things:

  1. It’s important to recognise when we are facing new and original situations (a genuine case of the much-used ‘unprecedented’ descriptor).

  2. When we are in such situations, it is unlikely that analysis based on the past will provide a robust assessment and lead to an appropriate response.

So, it is with climate-related change.

We are facing novel (non-stationary) climatic conditions – ones that fall outside the envelope of possibilities established from many years of past observations.

There is a large amount of uncertainty as to what those conditions will look like, and for some aspects even in which direction they will move.

Although the Intergovernmental Panel on Climate Change and other global reports are providing greater certainty around where the global climate is heading and why, it also reveals more about what we don’t know, meaning there is greater volatility around the general trends.

Faced with these uncertainties, in order to provide confidence to decisions makers, any assessment and analysis of company impacts from climate change needs to be underpinned by:

  1. A clear understanding of the key drivers of your business’ strategic success, including the drivers of its primary financial measures, and how these are impacted by climate-related factors.

  2. Developing and/or using innovative methods, ones that are not based on extrapolation of the past or that depend on stationarity in the operating environment (as is the case with most probability-based methods).

  3. Understanding of the limitations of the climate data that are being used as inputs to your assessments.

Without these underpinnings, impact analyses will have serious shortcomings, with two key consequences:

  1. Inappropriate decisions are being taken by companies and their stakeholders.

  2. Disclosures based on these analyses, for example, those that seek to meet the recommendations of the Taskforce on Climate-related Financial Disclosure (TCFD), being viewed as misleading.

This latter point could, in turn, lead to claims of greenwashing, (i.e. deception over the environmental credentials of the company) and subsequent litigation, reputational damage or high-profile director/employee casualties as was the case at DWS.

“I didn’t realise” is unlikely to offer a credible defence against either deliberate or inadvertent greenwashing. So, it’s incumbent upon advisors to ensure that their clients understand what they don’t know, what they are assuming, and the limitations of the analyses before they take inappropriate actions or make expensive misleading disclosures.

As actuaries, we have been trained in tools and techniques by which to understand uncertain outcomes. But how well equipped are the business executives and other professionals with whom we work to provide leadership in areas of great uncertainty such as climate-related change?

One way in which we might assist them to ensure that their analyses and resulting disclosures are robust, and to reduce the risk of inadvertent greenwashing, would be to ensure that they are able to answer some key questions before conducting impact analyses and publishing their disclosures. These might include[3]:

  • Does my disclosure clearly explain the most material risk and opportunities presented to my business by climate-related change?

  • Are the methodologies and data I’m using to assess impacts credible?

  • Do they recognise the changing future environment or are they based on historic observation?

  • Do I understand the external data sources I’m using, are they based in proven science and are they relevant to my situation?

  • Can my claims be substantiated or are they potentially misleading?

  • Are my sustainability targets addressing the most material risks, and are they demonstrably aligned with my business strategy?

  • Are the limitations of my analysis clearly and transparently articulated and have I made appropriate use of different scenarios to explain the range of potential outcomes?


This topic is explored in greater detail in a paper published by myself and colleagues at Energetics and jointly authored with the ARC Centre of Excellence for Climate Extremes and Swiss Re, titled Treating climate uncertainties as knowable risks – a recipe for greenwash?

Finally, there is one question that as actuaries we should be asking ourselves, whether acting as a company executive or advisor: are our actions making us part of the solution to recognising and understanding the uncertainties ahead, and a catalyst to positive climate-related outcomes, or part of the potential greenwashing problem?



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