BSI launches new standard to combat financial greenwashing

The research found that only 7% of overall votes on biodiversity proxies were able to provide shareholder reasonings for the decision

The Sustainable Finance Standard (BS ISO 32210:2022), aims to help financial organisations avoid greenwashing through the setting of credible ESG plans. BSI claims the new standard is designed to ‘demystify’ sustainability principles for financial sector organisations.

The guide is applicable to direct lenders and investors, asset managers and service providers to incorporate sustainability across their operations, activities, products and services.

One of the key challenges facing ESG finance and investing is that many companies, ratings agencies and investors are using different definitions of ESG and different methodologies to assess performance across each of the three pillars. Some of these methodologies are based on historic data, some on future predictions. Some assign more importance to issues which are less material to a particular sector or project than those which materiality assessments have proven to be key. Some assign more weight to the ‘E’ and/or the ‘S’ than the ‘G’.

The new standard, which is globally applicable, seeks to address the lack of clarity surrounding the global sustainable finance sector. The principles are designed to address the sector’s fragmentation and focuses on improving collaboration to improve standard approaches to green finance.

The standard aims to address all major ESG issues including inequality, climate change, environmental degradation, poverty, prosperity, peace, and justice.

Commenting on the announcement, Nigel Topping, the former UN High-Level Climate Action Champion, said: “The global challenges we face mean it is vital for financial organisations to play their part in building a more sustainable economy and society. The new narrative of change has to be collaboration and not competition. Ensuring all in the financial sector are talking the same language and tackling the heart of the issue is essential.

“Standards play an ever-increasing role in issues with a global impact and relevance; I saw first-hand at COP27 with the work that BSI has done around the Net Zero Guidelines, which were a significant step forward. This new standard will drive change and help embed sustainability in the global financial sector.”

There has been a massive growth in ESG-related disclosures and investing in recent years, with a report from EY stating that the total amount of assets under management covered by specific ESG funds reached $2.7trn in 2021, marking a 53% year-on-year increase.

EY argued in favour of a “whole-system approach” to stamping out impact-washing, improving the quality of data and the ways in which it is interpreted and reported. The report calls for ESG data and ratings agencies to be more transparent about how they source their data and calculate their scores. These firms could be assisted in this activity by having a shared, legal definition of key ESG-related terms and how to measure progress against them.

The announcement comes in the same month that HSBC has added greenwashing to a list of risks it foresees in its future ability – and the future ability of other banks – to access capital markets. HSBC was in the headlines for greenwashing late last year, when the UK’s Advertising Standards Authority (ASA) banned two of its out-of-home adverts on the grounds that their environmental claims could be misleading.

Read more from BSI

BSI has published a number of op-eds for edie in the last few months, including an in-depth look at BSI’s standard on modern slavery. Other op-eds have focused on the organisation’s own approach to reaching net-zero and a piece on how businesses can uncover and clarify their purpose, and how that can deliver prosperous results for the environment and society.

Read BSI’s blogs here.