Honesty is the best policy as greenwashing risk rises, says French broker

French broker Verspieren says that honesty and transparency are the best defences against the risk of greenwashing. But it also advises risk and insurance managers that insurance is available in some areas, such as environmental liability and D&O, if things go wrong. “For companies, the implementation of a CSR (corporate social responsibility) policy is becoming essential, whether to conclude sales, win calls for tenders or even attract candidates,” points out the French broker in a recent note. “But by communicating on their CSR policy, they expose themselves to the risk of greenwashing. Indeed, by using, intentionally or not, arguments exaggerating the reality of their societal or environmental commitments, companies and their managers can see their liability engaged,” adds Verspieren. The broker warns that the border between a company’s commitment to CSR and greenwashing can quickly and easily be crossed. “Greenwashing for a company means communicating on promises of commitment and action at the societal or environmental level that do not correspond to the reality of the facts. No company is immune to an accusation of greenwashing,” says Alex Boussac, head of civil liability at Verspieren. The challenge is that the authenticity of CSR policies are increasingly questioned. “Everything can easily be subject today to controversies or accusations, proven or not, especially in the age of social networks and even if the company does not act intentionally,” says Boussac. And the pressure is ramping up from a regulatory, legislative and legal perspective, stresses the broker. It points out that the European Council and the European Parliament, for example, reached a provisional political agreement in June on the Corporate Sustainability Reporting Directive (CSRD). “The proposal aims to remedy the shortcomings of the existing rules on the publication of non-financial information, the quality of which was insufficient to allow them to be properly taken into account by investors,” says Boussac. Greenwashing exposes companies to many risks, he adds. “The first risk for the company is financial. If it is unable to fulfill the CSR commitments announced when responding to a call for tenders, it risks seeing the contract terminated, with financial losses, as a consequence. A third party, in particular a subcontractor, can also challenge the company's liability by arguing a loss of turnover, or a loss of opportunity vis-à-vis the main contractor for future contracts,” says Boussac. Legal risk is also a serious factor. “If it is proven that it has made false statements and/or that it has not complied with laws and regulations, the company and its manager are liable to a civil conviction and/or or criminal action,” says Boussac. And, of course, there is huge reputational risk. “Greenwashing, even unintentional, weakens the relationship of trust between the company and all of its stakeholders, with the risk of losing customers, partners, suppliers or shareholders. The image risk also weighs on the recruitment of talent, especially young people, who are increasingly attentive to the reputation of the companies in which they are likely to work, and especially to their CSR practices,” warns Boussac. Greenwashing and cyber risk is another area of concern that risk managers need to consider, says the broker. The best solution to avoid any accusations of greenwashing is to be transparent and align words to actions. “All the actions taken must be clear and verifiable… the best thing is still to have your CSR strategy validated by an outside organisation. Consulting firms offer these services,” says Boussac. But the broker points out that risk managers can also turn to insurance, even if all the risks associated with greenwashing cannot be covered. D&O is one potential route. “Managers bear responsibility for their company, including in terms of CSR. Their civil liability can be engaged and sought by third parties if it is proven that the CSR policy that has been defined has not been respected, or if the contradiction between words and facts has generated financial losses for them,” says Boussac. “For example, the challenge may come from a shareholder in the event that the company has lost a significant part of its valuation due to a fine imposed for non-compliance with regulations related to the environment,” adds the broker. Environmental risk insurance is another potential risk transfer solution, says Boussac. “Companies whose activity poses a risk to the environment… are particularly exposed to the risk of greenwashing. Although bound by strict regulations and subject to administrative checks to verify the soundness of their environmental management, an incident cannot be ruled out. Insuring against environmental risk means limiting its financial consequences,” he explains.

Honesty is the best policy as greenwashing risk rises, says French broker

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