Socialwashing paradox, good for banks

Greenwashing and socialwashing. Two pathological sustainability phenomena that occur when companies declare activities they have not actually carried out. Environmentally (greenwashing) or socially (socialwashing). Consequence? Devastating effects on the company's reputation. There seems to be an exception, however.

"Greenwashing and socialwashing affect reputational risk in different ways: the former mainly generates negative effects, while the latter can produce, positive impacts," says Alessia Pedrazzoli, a researcher at the University of Milan-Bicocca, one of the authors of the study "Assessing the influence of Esg washing on banks' reputational exposure: a cross-country analysis". The other authors are Gennaro De Novellis (Sda Bocconi), Daniela Pennetta and Valeria Venturelli (both from the University of Modena-Reggio Emilia).

The paper analysed the effect of EG washing on the reputation of an international sample of 120 banks in 35 countries between 2014 and 2020. Esg washing is the mix of the two distorting phenomena in the environmental and social segments. Well, the researchers analysed the two phenomena individually with respect to banks. Conclusion? Greenwashing increases the reputational risk of banks, confirming what was known. Conversely, the surprise is on socialwashing: 'Higher levels of disclosure,' the study explained, 'compared to results on social issues, appear to reduce reputational exposure.

It seems a counterintuitive conclusion that of the study published in Business Ethics. However, this is indeed the case, at least for the banking sector. There are, of course, solid reasons for these conclusions: firstly, the absence of easily verifiable indicators to allow investors and stakeholders to assess the bank's real commitment to social issues; secondly, the lack of market sensitivity to social issues; and thirdly, the distance of the stakeholders: while high proximity stakeholders (such as employees) can distinguish between rhetoric and corporate reality, low proximity stakeholders, such as the general public or investors, struggle to do so and tend to rely solely on the bank's communications.