Increased Greenwashing Stains ESG Efforts: Report

Data science company RepRisk on Tuesday released a report showing big spikes in greenwashing, the practice of overstating or outright deception concerning a company’s environmental, social, and governance (ESG) efforts.

The report found a rise in greenwashing globally, but that America and Europe saw “significant increases” in incidents. The banking and financial services sectors alone saw a 70% increase in climate-related greenwashing incidents, the report said. The report found one in every four climate-related ESG risk incidents globally was tied to greenwashing, an increase from one in five in last year’s report.

Misleading claims about companies’ social responsibility efforts, known as “social washing” were also on the rise, RepRisk said.

“The expectation of competitive advantage derived from an image of sustainability has opened the door to green and social washing,” Philipp Aeby, CEO and co-founder of Zurich-based RepRisk, said in a statement. “A lack of accountability around a rapidly evolving landscape of corporate sustainability has helped keep this door open for a long time. Despite this, in recent years symbolic sustainability has backfired for many as the media, public, and regulators criticize unfounded claims.”

RepRisk’s criteria for greenwashing has expanded since last year’s report, the firm said. “Greenwashing now goes beyond directly misleading consumers -- its scope extends to include pledges, certifications, and commitments. The lack of accountability helps to further obscure greenwashing, making it possible for companies to benefit from setting future goals, without addressing issues head on,” according to a release from RepRisk.

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Banking Industry’s ESG Check Bounces

The banking and financial services sectors increased greenwashing activity is particularly worrisome, Aeby said. The report noted that more than 50% of greenwashing incidents either mentioned fossil fuels or linked a financial institution to an oil and case company. “Banks, asset managers, investors, and other market participants need transparent data on adverse impacts to assess a company’s true business conduct and mitigate green and social washing risk in their portfolios and supply chains.”

Regulators in America and Europe have ramped up efforts to clamp down on greenwashing. In May, the US Federal Trade Commission (FTC) updated its “Green Guides” to give the agency better legal footing by clarifying when suspected greenwashing violates federal law. The changes could bring more lawsuits and fines aimed at offending businesses.

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Greenwashing and Social Washing Correlate

RepRisk’s report also focused on social washing, showing that human rights abuses and corporate complicity was the most common such issue, accounting for 26% of incidents in Europe and 25% of incidents in the US. About 44% of companies in the US linked to greenwashing also have a record of social washing, according to the report.

Diversity, equity, and inclusion (DEI) efforts were also negatively impacted. In the US, 18% of social washing incidents are linked to either social discrimination, or discrimination in employment.

“Investors and other market participants need transparent data on adverse impacts to assess a company’s true business conduct and mitigate green and social washing risk in their portfolios and supply chains,” Aeby said.