A three-month hackathon that aims to devise a technology solution for tackling the risks of greenwashing in the financial services sector has invited firms to sign up and pitch in their ideas.

The brainchild of the Global Financial Innovation Network (GFIN), and due to take place from 5 June, the first Greenwashing TechSprint has already attracted the participation of 13 national and global watchdogs – including the World Bank and the UK Financial Conduct Authority (FCA).

As the organisation responsible for leading the project, the FCA will host the event on its Digital Sandbox platform: a collaborative space for testing early-stage financial innovations, particularly in the fintech arena.

Collective priority

In a statement urging UK firms to take part, the FCA explained: “The number of investment products marketed as ‘green’ or making wider sustainability claims is growing.

“Exaggerated, misleading or unsubstantiated claims about environmental, social and governance (ESG) credentials damage confidence in these products and the FCA wants to ensure that consumers and firms can trust that products have the sustainability characteristics they claim to have.”

The TechSprint will bring together a blend of firms, regulators and interested parties from the world of innovation to address sustainable finance as a collective priority. “The objective is to develop a tool or solution that can help regulators and the market effectively tackle the risks of greenwashing in financial services,” the FCA added.

GFIN’s official definition of greenwashing is “marketing that portrays an organisation’s products, activities or policies as producing positive environmental or social outcomes, or avoiding environmental or social harm, when this is not the case”.

Participants in the TechSprint should focus on two specific challenges. The first is how technology – including artificial intelligence and machine learning – can enable regulators and/or supervisors to verify that ESG or sustainability-related product claims made to retail consumers are accurate and complete. 

The second challenge that participants should address is how technology can be used to help monitor, collate and identify examples of greenwashing from the websites of financial services firms, their social media platforms and other documentation, or data that can also be shared across jurisdictions.

Reliable portfolio

Applications for the TechSprint are open now and will close on Sunday 21 May. From 1 to 2 June, the FCA will hold a special digital onboarding session to train participants on how to work in the Digital Sandbox.

At the beginning of the TechSprint, participants will be divided into work groups, each containing a mixture of specialisms. The concepts developed in a virtual Showcase will be unveiled by workgroups on 13 and 14 September, after which time the FCA will continue to provide access to the Digital Sandbox, enabling participants to refine their prototypes ahead of live field testing across different jurisdictions.

In a statement, GFIN stressed that greenwashing was a form of mis-selling and its objective was to protect consumers and promote a fair and reliable portfolio of sustainable financial services.

“As the demand for ESG-related products and services continues to grow, so does the risk of financial services firms potentially overstating their sustainability credentials to attract and retain customers and investors, whether done inadvertently or deliberately.

“In protecting against greenwashing, we want to ensure that consumers have access to ‘green’ or sustainable financial products and services that meet their needs and/or preferences.”

ICAEW Financial Services Regulatory Manager Polly Tsang says: “With billions pouring into green investments as a result of sustainability and net-zero ambitions among governments and corporates around the world, greenwashing is increasingly a focus for financial services firms. Indeed, scrutiny is particularly high in light of recent, high-profile investigations by US and German regulators into Deutsche Bank subsidiary DWS over greenwashing allegations.”

Tsang said assurance will have a key role to play in combating the problem: by promoting trust in reporting and enabling comparability and consistency across financial products, it can increase consumer confidence in this burgeoning investment area.

However, poor data and conflicting standards were hurdles that still needed to be overcome, she said: “Sustainability frameworks are still being developed around the world, and there is no set, global definition for terms such as ‘green’ and ‘sustainable’. In the UK, the incoming Sustainability Disclosure Requirements seek to address this – but the framework as it stands is too wide to assure on.

“Given that many firms are already using technology to audit companies’ financial data, it makes a lot of sense to explore how existing tools might be used to audit ESG assertions,” Tsang added.

• Find out more about the TechSprint at GFIN’s website.
• Read our related article: Why rules need to be tightened significantly to avoid a greenwashing scandal.