Greenwashing in ESG Investing: Balancing Profitability and Accountability in the EU and UK

This paper investigates the growing tension between profitability and accountability in ESG investing, particularly within the regulatory landscapes of the EU and post-Brexit UK. It showcases the significant pressure for companies to present themselves as ESG-compliant, and potentially reap related financial benefits, while often lacking the substantive actions to back such claims. In the EU, key legal tools such as the Taxonomy Regulation, Sustainable Finance Disclosure Regulation (SFDR), and the Corporate Sustainability Reporting Directive (CSRD) form a layered framework that seeks to standardize ESG transparency requirements. Nonetheless, this paper notes persistent challenges, including ambiguous thresholds like "significant harm", the complexity of SFDR disclosures, as well as the risk of greenwashing and green bleaching. Post-Brexit, the UK has also developed its own anti-greenwashing regime, including FCA rules, sustainability labels, and strict naming restrictions, although these may impose compliance burdens and create interpretive uncertainty. This paper concludes by offering best practice recommendations for financial institutions - such as enhancing transparency through third-party audits, improving ESG due diligence, strengthening governance through ESG oversight and incentive alignment, fostering stakeholder engagement, and leveraging technology like real-time analytics or blockchain for verifiable ESG reporting.