FCA-hosted TechSprint aims to harness technology innovation to outpace adverse impacts of greenwashing in financial services.
Four teams have been recognised at a regulator-run TechSprint event aimed at developing technological solutions to counteract greenwashing, boost trust in sustainable finance and improve accuracy of information for investors.
At yesterday’s culmination of the Global Financial Innovation Network’s (GFIN) first Greenwashing TechSprint, awards were presented based on different criteria. The Jump Solution, Eureka Solution, Fast Solution and Globe Trotter awards were won by intelligence platform Fidata, academic institution King’s College London, enhanced due diligence platform Neotas, and SKFH respectively.
The TechSprint, which was hosted on the UK Financial Conduct Authority’s (FCA) digital sandbox, set its entrants the objective of developing a tool or solution that can be used “across jurisdictions” to help tackle greenwashing risks in financial services.
In a three-month process, participants were asked to focus on a critical problem for sustainable investing, namely how technology can be used to help “monitor, collate and identify” examples of greenwashing from financial services firms’ websites, social media platforms and other documentation or data that is able to be shared across jurisdictions.
A total of six teams presented solutions for this problem statement, one of two issues the TechSprint aimed to address. The other problem statement was examining how technology, including artificial intelligence and machine learning, can enable regulators and supervisors to “verify that ESG-related product claims to retail consumers are accurate and complete”, with seven teams presenting solutions.
Jessica Rusu, Chief Data, Information, and Intelligence Officer at the FCA, told ESG Investor that regulators wanted to ensure that investors “have access to genuinely sustainable financial products that meet their needs and preferences”.
She added that greenwashing was identified by international regulators as a “key area” that they shared a “common desire” to collaborate and leverage innovation on how to tackle the issue.
Rusu noted that this is the “first time ever” that there’s been an international regulator sandbox event focused on greenwashing.
Threats of greenwashing
Greenwashing was identified by GFIN, an international group of 80 financial regulators and related organisations, as a key focus area due to the increasing demand for ESG-related products and services increasing the risk of firms potentially overstating their sustainability credentials to draw in and keep customers.
“At the core of greenwashing, or even more broadly ESG, the challenge is really one of data,” Rusu said. “Ultimately, it’s about the disclosures,” she added. “It’s about the information that you get in front of a sophisticated or non-sophisticated investor [to ensure] they have that transparency and accurate information.”
Speaking at the event, Rodrigo Buenaventura, Chair of the International Organization of Securities Commissions’ Sustainable Finance Task Force, noted that greenwashing has been a “cross cutting feature” of sustainable finance over the past few years.
He said that greenwashing presents “several threats”, flagging their negative impact on the “integrity of the capital markets” as well as the “detrimental impact” it can have on the momentum surrounding sustainable finance.
“Lack of trust and confidence in sustainable finance solutions could adversely impact the global efforts in addressing climate change,” Buenaventura added.
Fifteen international regulators took part in the TechSprint, including the World Bank and regulators from countries including India, UAE, Georgia, Colombia, Ukraine, and Taiwan among others.
Matt Lowe, Manager of the Innovation Lab at the FCA, said that the sandbox will remain open for Greenwashing TechSprint participants that need to continue development of their solutions.
He also said that the FCA will further explore the projects with other regulators to gauge their appetite for the continued development of these greenwashing solutions.
High on the agenda
Use of technology innovation has been an increasing theme for the efficient analysis of ESG risks in their portfolios by investors and financial institutions, as well as addressing and tackling wider environmental and social threats.
Tool providers have increasingly used innovations such as generative artificial intelligence to address ESG-related issues.
In the UN Framework Convention on Climate Change’s (UNFCCC) synthesis report on the technical dialogue of the first Global Stocktake – due to take place at COP28 later this year – it underscored the need for “accelerated” innovation and the development new technologies.
Buenaventura suggested that transparency of information “properly published in a digital format may be the best antidote against greenwashing contagions”. He added that investors are “increasingly consuming information digitally” furthering the need to facilitate the digital consumption of sustainability-related information.
“We believe that building trust through high standards of behaviour is critical,” Buenaventura said, adding that technology and digital solutions have “great potential” in working towards this end goal.“
“This greenwashing TechSprint brings together academics, regulators, and technical specialists, to all focus concretely on the problem,” the FCA’s Rusu said.
According to Buenaventura, the prevalence of greenwashing has triggered a “call for transparency” to ensure that investors receive “timely, full, comprehensive and comparable” information to mitigate the risks of greenwashing, which the GFIN Greenwashing TechSprint aims to overcome.
Geraldine Kraev, Data, Technology and Innovation Division, Strategy and Engagement Leader at the FCA, told ESG Investor that greenwashing was a “pressing issue” that had come up repeatedly in the GFIN’s workshops.
“The idea behind the TechSprint is to develop proof of concepts and empower our GFIN’s network to accelerate their development in a cross-border capacity, according to Kraev. “Global problems need global solutions,” she said.
“We will have regular check-ins with the firms and the regulators to see any progress made and that will be shared as well as our network,” Kraev added.
Fintech has a key role to play in tackling greenwashing, said Rusu, with startups capable of tackling emerging problems in the market such as sustainability or artificial intelligence.
“Often, it’s the startups, the unicorns, the innovators that are able to most quickly rise to that challenge,” she added.