TL;DR
- Failing to align your ESG metrics with credible data can expose your organisation to greenwashing risks, reputational damage, and investor distrust.
- Leveraging robust, transparent climate and environmental data builds trust with stakeholders and demonstrates a genuine commitment to sustainability.
- Avoid greenwashing by aligning with regulatory expectations and prioritising transparency, data quality, and clear sustainability commitments in your ESG practices.
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Duration: 15 minutes
The nexus between climate risk and greenwashing is complex to define.
If you don't adequately represent your asset exposure to climate risks, there's a chance you could see an increase in reputational damage.
Climate-related greenwashing incidents in the banking and financial services sectors surged by 70% in 2023.
In this article, we discuss how you can maintain ESG credibility and transparency by avoiding greenwashing in sustainable finance.
Particularly, we emphasise how you can leverage data and comply with regulatory expectations to build investor trust and lead with integrity in your operations.
What Greenwashing Looks Like in 2025
Greenwashing in sustainable finance is a concern for 85% of investors.
In the latest report by the European Securities and Markets Authority (ESMA) assessing greenwashing risks, these are defined as "a practice by which sustainability-related statements, declarations, actions, or communications fail to clearly and fairly reflect the underlying sustainability profile of an entity, a financial product, or financial services".
When companies misrepresent their sustainability performance, they deceive stakeholders, diminish the impact of authentic initiatives, and break the public’s trust.
This ultimately obscures the genuinely responsible players in the market.
In 2025, regulations such as the EU Corporate Sustainability Reporting Directive (CSRD), EU Deforestation Regulation (EUDR), EU Green Claims Directive, and the UK Green Taxonomy have advanced, with the CSRD already in effect. Companies across industries, particularly in the EU and UK, are now under growing pressure to back up their climate and environmental claims with concrete evidence and transparent data. As a result, many are accelerating their sustainability goals to meet these rising expectations.
This is also true as recent findings show that global greenwashing has decreased overall (a 20% decline in the EU), even though the US and Europe continue to have the highest records of incidents.
Data Depth as a Guardrail
You need robust climate-related and environmental data to support your sustainability claims and maintain ESG credibility.
Without it, not only are your assets vulnerable to climate risks, but you and your firm are also subject to accusations of greenwashing sustainable finance.
By leveraging climate risk data, you can demonstrate transparency in your finance and build trust with your stakeholders and investors.
As a portfolio manager, ensure ESG data accuracy by:
- Collecting and reporting data on key ESG metrics, such as water usage or greenhouse gas emissions from clients or asset geographic locations.
- Using advanced data analytics to identify areas of risk and opportunity for your assets, assess the best adaptation measures, and track progress.
Lukky Ahmed, Climate X's co-founder and CEO, argues that "tools that combine physical risk with financial exposure will be game-changers. But they have to be explainable: you can’t just throw a black box at a risk committee".
- Engaging third-party auditors to verify your sustainability data and claims.
- Integrating ESG data into your financial reporting to demonstrate a commitment to transparency.
- Frequently reviewing and updating your sustainability metrics to reflect changing stakeholder expectations and the risk landscape.
Tools that combine physical risk with financial exposure will be game-changers. But they have to be explainable: you can’t just throw a black box at a risk committee."
Lukky Ahmed, CEO of Climate X
Using Asset-Level Risk to Back Claims
When making sustainability claims, you can back them up with results from asset-level risk assessments.
This involves analysing the climate-related and environmental impacts of specific assets and resilience features, such as investments or properties, to demonstrate your commitment to transparency and ESG credibility.
This way, you can identify areas of vulnerability and develop tailored strategies to address them.
In this sense, Ahmed claims that "open data is important, but even more critical is how it’s framed and applied. The wrong framing can mislead more than inform".
To use asset-level risk assessments effectively, consider:
- Conducting regular assessments to identify potential climate-related and environmental risks and opportunities. Climate X's Spectra and Adapt can help you in this instance.
Spectra provides an asset-level assessment of your climate exposure and potential losses, while Adapt helps you prioritise which assets or regions to protect, retrofit, or divest from.
- Developing targeted strategies to address risks (including climate risks) and capitalise on opportunities.
- Engaging stakeholders, including investors and regulators, in the assessment process.
- Leveraging asset data to inform your sustainability reporting and claims.
Regulatory Expectations and Risk
As a financial leader, you need to align with evolving regulatory expectations around sustainable finance compliance.
Failure to comply can result in reputational damage, fines, and loss of investor trust. Regulators are increasingly scrutinising sustainability claims, and you need to ensure that your practices meet the highest standards of transparency and ESG credibility.
For example, while the EU's Sustainable Finance Disclosure Regulation (SFDR) requires financial institutions to disclose specific ESG metrics, the European Central Bank (ECB) still expects banks operating in the EU to comply with their expectations to integrate climate-related and environmental risks into their business operations.
If non-compliant, the Bank reserves the right to impose fines and penalties that could impact their reputation.
To meet growing regulatory expectations, many financial institutions are turning to climate intelligence tools to strengthen their sustainable finance compliance.
For example, Triodos Bank, a long-time leader in responsible banking, partnered with Climate X to deepen their climate risk analytics.
As Jeroen Pels, Group Director Commercial at Triodos Bank, explains:
“Triodos Bank has always championed the transformative power of sustainable finance to foster positive change.
Our partnership with Climate X is a natural extension of this philosophy. [...]
By integrating advanced climate analytics into our banking services, we are enhancing our ability to meet regulatory demands while simultaneously supporting our clients to better understand and respond to climate-related risks.”
Whether you're at the beginning of your climate compliance journey or looking to enhance existing practices, here are a few strategic actions to consider:
- Stay informed about evolving regulatory requirements and expectations around sustainable finance.
- Ensure your ESG disclosures align with both internal standards and external mandates.
- Integrate climate-related and environmental risks into your broader operational and risk management processes.
- Conduct regular audits to monitor compliance and uncover areas for continuous improvement.
Watch the Webinar: How to Scale Sustainable Finance
Earning Investor Trust: Transparency & ESG Credibility
Transparency in finance and ESG credibility are key to the success of your sustainability practices.
This involves being precise, aligning actions with commitments, verifying claims, engaging stakeholders, and avoiding misleading claims.
By doing so, you can build a strong reputation, avoid potential regulatory fines, and attract investors who share your values. Ahmed equally supports that "trust comes from transparency: not just in data, but in limitations".
Additionally, according to a survey by EY, 88% of investors consider ESG factors when making investment decisions.
To build trust with investors, focus on these key strategies:
- Precision - Share detailed, data-driven insights into your climate-related and environmental impacts, goals, and achievements.
- Credible commitments - Back up your sustainability claims with tangible and resilient actions, investments, and science-based targets.
- Independent validation - Use third-party verification to authenticate your climate-related and environmental claims and ensure data accuracy.
- Stakeholder involvement - Engage employees, suppliers, and corporate clients in your sustainability journey, keeping them informed about progress and initiatives.
- Authentic communication - Ensure all marketing and messaging accurately reflects your climate-related and environmental practices, avoiding exaggeration or misrepresentation.
There are many challenges linked to greenwashing sustainable finance, but the path ahead requires a fundamental shift in how we approach ESG credibility and transparency.
Leveraging accurate data, conducting asset-level risk assessments, and aligning with regulatory expectations are crucial steps towards building trust and integrity.
So, what's next for you? As a financial leader, it's time to take concrete actions – assess your current sustainability practices, identify areas for improvement, and implement the recommended strategies above.
You will not only address the risks of greenwashing sustainable finance but also ensure the resilience of your products. If you want to learn more about our approach to sustainable finance, watch the free webinar below.
Watch the Webinar: How to Scale Sustainable Finance
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