Khanchit Khirisutchalual

With regulators becoming increasingly concerned about the risks posed by “greenwashing,” their next target may be “social washing,” Fitch Ratings says in a new report.

The rating agency said that customer-related issues — including fair treatment, product safety, marketing and lending practices and privacy issues — are attracting more attention from investors, driven by increased regulatory demands and enhanced ESG disclosure.

“Changes in macroeconomic conditions, business operations, increasing regulatory pressure and litigation risks could lead to credit risks as investors turn their attention to these ESG factors,” Fitch said.

Efforts by global policymakers to enhance consumer protection and to prevent fraud and misconduct could heighten the risks facing customer-focused issuers, it suggested.

At the same time, companies will have to step up their investments to adapt to tougher regulations and shifts in consumer behaviour.

“The increasing focus on customer issues could push business models to incorporate social risks, and will pose medium- to long-term credit risks to most customer-focused issuers,” it said.

Moreover, in the same way that increased environmental concerns have led to greater greenwashing risk, the enhanced focus on consumer issues may heighten the threat of “social washing” — investors being misled about the socially responsible aspects of investments.

As a result, Fitch expects investors to demand standardized disclosure frameworks that aim to measure the credit impact of customer-related social issues.