Will regulators tackle ‘social washing’?

Now that greenwashing issues are under heavier scrutiny, will ‘social washing’ be the next regulatory risk for companies eager to promote their social values? An analysis by Morningstar points out that social washing can be described as the “disconnect between perceived commitments to social issues and genuine action” and it “expect[s] companies involved in social washing to be exposed to regulatory fines by consumer advocacy bodies cracking down on false or misleading advertising.”

The problem can arise when observing a company’s brand promotion, political donations or corporate statements on diversity, equity and inclusion, and not enough concrete action can be demonstrated. Aside from reputational damage, this could create valuation risk for companies or mislead impact-oriented investors who prioritise management of social issues in their investment decisions.