Note4Students

From UPSC perspective, the following things are important :

Prelims level: Greenwashing

Mains level: Not Much

greenwashing

Reserve Bank Deputy Governor called for a taxonomy on green finance to avoid the risk of “greenwashing”.

What is ‘Greenwashing’?

Greenwashing refers to misleading the general public into believing that companies, sovereigns or civic administrators are doing more for the environment than they actually are.
This may involve making a product or policy seem more environmentally friendly or less damaging than it is in reality.
The term was coined by environmentalist Jay Westerveld in 1986.
The phenomenon came into practice as consumers and regulators increasingly sought to explore planet-friendly, recyclable and sustainable ‘green’ products.
By 2015, 66% of consumers were willing to shell out more for a product that was environmentally sustainable.

How is it done?

There is the indiscriminate use of the terms ‘net-zero’, ‘net-zero aligned’, ‘eco-friendly’, ‘green’ and ‘ecological’.
Since there is no compliance mechanism, such practices are rampant.

Greenwashing is done primarily for a company to either present itself as an ‘environment-friendly’ entity or for profit maximisation.
It is achieved by introducing a product, catering to the inherent demand for environment-friendly products.
In certain instances, it is done using the larger idea as a premise to cut down on certain operational logistics and providing consumer essentials.

Ethical investing: Sustainable investing has become increasingly popular among millennials and impact investors concerned with ‘ethical investing’.
Role of ESG credentials: Financial services providers expect increased scrutiny of a company’s Environmental, Social and Governance (ESG) credentials from regulators, shareholders, customers as well as other stakeholders.
Transition funding: Financial institutions are expected to fund the transition towards renewable energy and discourage investments in further harnessing of conventional energy sources as coal, oil and gas.

If the financial sector is to respond effectively to the demand for products that endeavour to introduce positive changes into the economy, it is imperative that ‘greenwashing’ is averted.
In May this year, market regulator Securities and Exchange Board of India (SEBI) constituted an advisory committee to look into all ESG-related matters.

The expert committee recommends that financial institutions immediately discontinue all lending, underwriting and investments in companies wanting to strengthen or expand their coal-related infrastructure.
As for oil and gas, it recommends the discontinuation of all investments that would involve exploration of new oil and gas fields, expansion of existing reserves and further production.
Instead, companies should facilitate increased investment in renewable energy and institutions that are aligned to facilitate net zero emissions by 2050.

Companies must work towards reducing emissions across their entire value chain and not limit the endeavor to only one part of the chain.
They must not invest, through any means, in harnessing fossil fuels or engage in deforestation and other environmentally destructive activities.
In addition to this, companies cannot compensate for this investment by means of cheap credits, that “often lack integrity”.
Further, all state and non-state actors must ensure a ‘just transition’ such that livelihoods are not affected.
The committee also recommends a transition from voluntary disclosures (pertaining to net emissions) to regulatory norms.