[Global Focus] The Spread of Green Themes... US Wall Street Issues 'Greenwashing' Investment Warning

Financial Investment Firms' Green Bond Issuance This Year
Fee Revenue of 2.56 Trillion Won
US JP Morgan Faces Backlash Over Fossil Fuel Investments
German DWS ESG Performance False Disclosure
Greenwashing Controversy Continues

[Asia Economy Reporter Yujin Cho] JP Morgan, the largest investment bank in the United States, has recently been embroiled in a 'greenwashing' controversy. Despite declaring ESG (Environmental, Social, and Governance) management and increasing the issuance of green bonds, it has not reduced investments related to fossil fuels. One asset management company even refused to purchase green bonds issued by JP Morgan for this reason. As the related market grows, investors are paying more attention to the issuer's eco-friendly strategies and business performance than to the yield of the green bonds themselves. Steven Nichols, Head of ESG Capital Markets for the Americas at Bank of America (BoA), said, "Investors are increasingly focusing on whether the use of funds raised through bonds aligns with the issuer's sustainability strategy."

The Wall Street Journal (WSJ) recently reported that investor caution is growing in Wall Street against so-called greenwashing bonds used to polish corporate eco-friendly images. As ESG emerges as a core issue for corporate growth and massive funds flow into green bonds, greenwashing controversies are also expanding.

◇ Financial institutions making money with 'green' = Green bonds refer to bonds issued to raise funds for environmentally friendly projects. As interest in ESG investment increases, the issuance of green bonds is also rapidly increasing.

According to Bloomberg, the fee income earned by major global financial investment firms from green bond issuance this year reached $2.17 billion (about 2.56 trillion KRW), nearly double last year's annual $1.25 billion. Interest in climate and environment surged due to the COVID-19 pandemic, and investments for transitioning to low-carbon industries, such as the introduction of carbon border tax in 2026 and rising carbon emission allowance prices, as well as ESG bond financing, are expected to increase.

Greenwashing is a portmanteau of 'green' and 'washing,' referring to the practice of falsely or exaggeratedly claiming eco-friendly management to gain economic benefits, despite being far from environmentally friendly in reality. The UK’s HSBC also faced criticism for not transparently disclosing its investments in fossil fuel businesses while setting a goal to achieve carbon neutrality by 2050.

Moreover, there are cases of greenwashing involving false disclosure of ESG performance. DWS, a subsidiary of Germany’s largest bank Deutsche Bank, is under investigation by the U.S. Securities and Exchange Commission (SEC) and Germany’s financial supervisory authority BaFin for allegedly falsifying ESG-related information in August. DWS claimed in last year’s sustainability report that €459 billion, about half of its total assets under management (€900 billion), were ESG-related assets, but this figure has been questioned as false. DWS denies the allegations, but its stock price plunged 14% in one day after the SEC investigation began.

Like the DWS case, greenwashing is spreading to corporate value decline, issuer image damage, and even legal risks. In March, three U.S. environmental groups filed a complaint with the Federal Trade Commission (FTC) against Chevron, a major U.S. oil company, accusing it of misleading consumers about its environmental impact. Environmental groups argue that Chevron’s promise of "always cleaner energy" constitutes greenwashing, especially since its absolute emissions are likely to increase. Chevron became the first company to be reported to the FTC for greenwashing.

◇ Ambiguous criteria for 'green' evaluation = The biggest reason greenwashing occurs is the lack of clear legal and institutional grounds to verify whether something is truly 'green (ESG).' Currently, ESG bond requirements are used voluntarily by the private sector without external evaluation standards. Although countries are accelerating efforts to establish regulations to prevent greenwashing, discussions on international standards that can clearly distinguish ESG have not practically begun.

The European Union (EU), regarded as the leader in climate change and ESG response, launched the 'Sustainable Finance Disclosure Regulation (SFDR)' in March to verify greenwashing but still requires additional improvements. The U.S. SEC is aiming to implement mandatory ESG information disclosure for listed companies within the year. Singapore also plans to require all listed companies, including banks, to disclose climate-related financial risks starting next year.

Bloomberg reported, "Regulations implemented by countries including the EU are still incomplete, so establishing universally applicable evaluation criteria is urgent," but added, "It will take considerable time to reach a global consensus on a consistent and clear ESG evaluation system."

Christian Rohn, CEO of Swedish startup Normative, which is developing carbon tracking software, said, "If something can be measured, it basically means it can be managed," adding, "The reason we do this work is that the world is facing a climate crisis, and we need to recognize that two-thirds of all emissions come from companies."

◇ "Half of ESG financial products are unsuitable" = According to the Global Sustainable Investment Alliance (GSIA), global ESG-related assets were estimated at $35.3 trillion (about 41,668 trillion KRW) last year. The U.S. accounted for the largest share with $17.1 trillion, followed by the EU with $12 trillion, Japan with $2.9 trillion, and Canada with $2.4 trillion.

The scale of ESG-related financial products is increasing every year, raising the possibility of greenwashing. In fact, after the EU implemented SFDR, many financial products were deemed unsuitable, causing ESG asset size to plummet from $14.1 trillion in 2018 to $12 trillion last year.

InfluenceMap, a UK-based ESG rating agency, reports that more than half of ESG financial products managed by major global asset managers do not align with the Paris Climate Agreement goals. Dan van Acker, an analyst at InfluenceMap, said, "With the explosive increase in ESG and climate-themed funds in recent years, investors are inevitably vulnerable to greenwashing controversies," and emphasized, "Establishing a regulatory environment is urgent."