Environment & Biodiversity


  • To avoid the risk of “greenwashing,” the Reserve Bank’s Deputy Governor has called for a taxonomy on green finance.
  • Greenwashing is the practice of misleading the general public into believing that businesses, governments, or civic officials are doing more for the environment than they actually are.
  • This may entail making a product or policy appear more environmentally friendly or less harmful than it is.
  • Jay Westerveld, an environmentalist, coined the term in 1986.
  • The phenomenon emerged as consumers and regulators sought out more environmentally friendly, recyclable, and long-lasting ‘green’ products.
  • By 2015, 66% of consumers were willing to pay more for an environmentally sustainable product.

How is it done? 

  • The terms ‘net-zero,’ ‘net-zero aligned,’ ‘eco-friendly,’ ‘green,’ and ‘ecological’ are used interchangeably.
  • Such practices are common because there is no enforcement mechanism.

Why it happens 

  • Greenwashing is done primarily for a company to present itself as an ‘environmentally friendly’ entity or to maximize profits.
  • It is accomplished by introducing a product that addresses the inherent demand for environmentally friendly products.
  • In some cases, it is done with the larger idea as a premise to reduce certain operational logistics and provide consumer essentials.

Its relation with the financial sector

  • Ethical investing: Millennials and impact investors concerned with ‘ethical investing’ are increasingly interested in sustainable investing.
  • ESG credentials’ role: Regulators, shareholders, customers, and other stakeholders are expected to scrutinize a company’s Environmental, Social, and Governance (ESG) credentials more closely.
  • Transition funding: Financial institutions are expected to fund the transition to renewable energy while discouraging investments in traditional energy sources such as coal, oil, and gas.

Policy moves in India

  • If the financial sector is to effectively respond to the demand for products that aim to bring about positive changes in the economy, ‘greenwashing’ must be avoided.
  • The Securities and Exchange Board of India (SEBI) established an advisory committee in May this year to investigate all ESG-related issues.

Key recommendations

  • The expert committee recommends that financial institutions cease all lending, underwriting, and investments in companies seeking to strengthen or expand their coal-related infrastructure immediately.
  • In the case of oil and gas, it recommends that all investments involving the exploration of new oil and gas fields, the expansion of existing reserves, and further production be halted.
  • Companies should instead encourage increased investment in renewable energy and institutions that are committed to achieving net zero emissions by 2050.

Way ahead

  • Companies must work to reduce emissions across their entire value chain rather than focusing on just one part of the chain.
  • They must not, under any circumstances, invest in the extraction of fossil fuels or engage in deforestation or other environmentally destructive activities.
  • In addition to this, companies cannot compensate for this investment by means of cheap credits, that “often lack integrity”.
  • Furthermore, all state and non-state actors must ensure a “just transition” that does not jeopardize livelihoods.
  • The committee also suggests a shift from voluntary disclosures (of net emissions) to regulatory standards.
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