Mercer and Law Chronicle Leaders Explore Greenwashing Risks

Is the era of performative corporate reporting over?

With the introduction of regulatory standards such as IFRS S1 and S2 – which set out requirements for the disclosure of sustainability-related financial information – and growing public scrutiny around greenwashing, finance leaders need to make sure their organisations' sustainable initiatives are more than just empty promises.

According to Saffron Gilbert-Kaluba, CEO of The Law Chronicle and a United Nations Ambassador for the UN Net Zero Facility Capital Fund, data is one of the core tools a finance leader has at their disposal when building up a sustainable investment strategy.

“As CEO of The Law Chronicle, a regulatory technology platform for financial institutions, and as a United Nations Net Zero Facility Capital Fund Ambassador, I see sustainability through two complementary lenses: regulatory intelligence and capital mobilisation,” she explains.

“The common thread between the two is data. Sustainability becomes financially meaningful when organisations can identify emerging regulatory and climate risks, translate them into financial exposure, make better capital-allocation decisions and then measure the resulting outcomes. The future of sustainable finance, therefore, is not simply about producing more sustainability metrics. It is about creating metrics that enable better financial decisions.” 

This evolution means that finance leaders need to filter vanity indicators and prioritise metrics that can be mapped directly to financial statements – with Cara Williams, Senior Partner and Global Head of Climate and Sustainability at Mercer, suggesting that financial materiality is one of the most important benchmarks for financial reporting.

“Start with what is financially material,” she says. “A useful KPI should tell you something about revenue, cost or risk. The real test is whether you can connect it back to business factors such as cash flow, margins, asset values or earnings at risk. If you can’t, I’d question how useful the KPI really is.”

Understanding climate risks

When it comes to financial reporting, it can be hard to understand how more abstract concepts – like unknown environmental threats – can be modelled within conventional reporting frameworks. Many leading institutions, however, are now converting physical climate risks, biodiversity degradation and regulatory shifts into more concrete financial investments.

In fact, private capital investments in nature projects have increased roughly five-fold over the last decade, reaching US$14bn in 2025, according to the World Economic Forum. According to Saffron, CFOs can structure sustainability across three core areas: revenue, cost and risk. 

“For revenue, financial institutions could measure the proportion of revenue generated from sustainable or transition-related products, the amount of transition finance deployed and the percentage of clients requiring new sustainability-related financial products,” she says.

“For cost, they could measure energy efficiency, operational resource costs, regulatory compliance costs and the cost of manual sustainability and regulatory reporting.”

Risk, Saffron says, is where regulatory intelligence “becomes particularly valuable”.

“A bank, for example, could measure the proportion of its lending portfolio exposed to sectors facing significant regulatory transition, the amount of revenue or assets exposed to emerging climate regulation and potential EBITDA or credit losses under different transition scenarios,” she explains. 

Organisations that can embed regulatory intelligence such as this directly into its decision-making frameworks could more proactively target market volatility – potentially supporting more precise risk management.

“A regulatory technology platform can monitor developments across regulators and policymakers, identify which regulatory changes could affect a financial institution and map those changes against its business activities,” Saffron says. 

“For example, if a new climate-related regulatory requirement affects a particular lending sector, the important KPI isn't simply ‘a new regulation has been identified’. It’s: What percentage of our portfolio is affected? What is the cost of compliance? What assets or revenue are potentially exposed? What capital allocation decision should follow?  That is when sustainability data becomes financial intelligence.”

This approach is especially vital when looking at the management of environmental dependencies. Applying a similar level of rigour to nature-related risks, finance teams can look to manage more abstract ecological concerns through the lens of concrete, financial impacts.

When evaluating these natural capital dependencies – for instance, ecosystem degradation or water scarcity, Cara believes that finance teams need to map environmental pressures directly to operating costs and asset impairment. 

“Translate the nature dependency into a financial consequence,” she advises. “Water stress, for example, might mean higher input costs, production disruption or additional capex. From there, finance can express the risk as revenue at risk, EBITDA at risk, expected loss or asset impairment. Nature may be the source of the risk, but finance needs to understand where it lands financially.”

What is the ‘cost of doing nothing’?

Building up this understanding is crucial for finance teams – with leadership teams often struggling to justify spending on green initiatives and climate resilience, as these investments often do not yield a quick financial return.

But attitudes around environmental investments are changing. In 2022, research conducted by Capgemini found that 53% of executives felt that the costs of pursuing sustainability initiatives outweighed the benefits.

Just one year later, that number had more than halved to 24%, while the percentage of respondents who believed that the business case for sustainability tripled from 21% to 63%. 

This can be seen in the way organisations are looking at these investments today – treating climate projects as strategic business decisions to build a competitive advantage and drive value.

This means carefully calculating risks and long term value, instead of focusing solely on immediate profit.  According to Cara, there are several key KPIs finance teams should present to convince board members that investing in climate resilience is a smart financial decision. 

“Look at abatement cost, energy savings, carbon-cost exposure, payback and IRR,” she says.

“For resilience, focus on losses avoided, downtime reduced, revenue protected and asset life extended. And always show the cost of doing nothing – through thorough scenario analysis one can easily see how that can completely change the economics.”

Saffron advocates for a similar shift in attitude.

“I would encourage finance leaders to stop presenting decarbonisation as simply a sustainability expense and instead present it as a capital-allocation decision,” she says.

“A board should be able to understand both the financial return and the risk-adjusted transition value of an investment.

“I would also include a ‘do nothing’ scenario. If an organisation is considering US$20m of climate-resilience investment, the board should not only see the expected return from making the investment. It should see the projected financial cost of not making it – whether that is through disruption, regulatory exposure, increased insurance costs, stranded assets or lost revenue.”

Managing public perception

However an organisation looks to invest in green initiatives, it’s important to remember that these investments will only be well-received if they’re tangible.

Regulators, stakeholders and consumers alike are becoming more and more aware of greenwashing – with vague promises likely to become a reputational risk. 

In order to build genuine credibility, Cara suggests that finance leaders need to focus on making sure environmental initiatives are actually embedded into business operations. 

“The better approach is not to create a separate category of ‘sustainable’ capital,” she says.

“It is to integrate material sustainability factors into normal capital allocation. Set a credible baseline, define measurable outcomes, keep testing the investment thesis and be transparent about assumptions and uncertainty. The objective should be better capital allocation – not simply carrying a sustainability label.”

Saffron, meanwhile, says she believes the most effective approach is “moving away from aspirational sustainability commitments to evidence-based capital allocation”.

Putting this into practice often means replacing empty, goodwill statements with actual facts and data – meaning that people will look at the way an organisation is genuinely using its investment to drive change, rather than a vague intended impact. 

“Every material sustainability claim should have provenance,” says Saffron. “For example, rather than saying that a financial institution is “supporting the transition”, it should be able to demonstrate how much transition finance has been committed, deployed and ultimately delivered, what eligibility criteria were applied and what measurable outcome resulted." 

“The same applies to international climate finance. From my perspective as a United Nations Net Zero Facility Capital Fund Ambassador, it is important to distinguish between capital that has been announced, capital that has been mobilised and capital that has actually been deployed, while also measuring the resulting climate or resilience outcomes.”

The future of sustainable finance, she concludes, will belong to the institutions that can "identify risks early, quantify them financially, allocate capital intelligence and demonstrate, with evidence, what that capital achieved”.