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# October 2023

# Introduction

Since the publication of our 2022 report on greenwashing, we have experienced a surge of interest from clients, partners, and researchers in the identification and measurement of greenwashing risk. With another year’s worth of ESG risk incident data, we return to the analysis to see how the landscape has evolved. Furthermore, we are extending the scope to include social washing – a practice not currently as prominent as greenwashing, yet equally present. Most notably, in our data, we observe social issues are, more often than not, inextricable from environmental ones – making a case for evaluating ESG as a holistic, interconnected topic.

The resulting analysis indicates that a growing number of both public and private companies have been linked to Misleading communication1 around environmental issues. Greenwashing risk has accelerated in Europe and the Americas, with the Banking and Financial Services sectors particularly exposed.

  • In the past year (September 2022 – September 2023), one in every four climate-related ESG risk incidents was tied to greenwashing, an increase from one in five in our last report.
  • The Banks and Financial Services sectors saw a 70% increase in the number of climate-related greenwashing incidents in the past year, compared to the year prior.
  • For many, the practices go hand-in-hand, with nearly one in three public companies linked to greenwashing also associated with social washing.

The pervasiveness of greenwashing and social washing across regions and sectors presents risks for companies, employees, and communities. Misleading communication around environmental and social topics not only impedes progress towards collective goals, but also damages trust with consumers and investors. To identify and prevent Misleading communication around sustainability in compliance with emerging regulations, high-quality outside-in data that goes beyond company self-reporting is essential.

# ESG pillars: The subject of Misleading communication

Fig 1. Share of risk incidents linked to ESG pillars and Misleading communication, September 2018 – September 2023

# An evolving research and regulatory landscape

The past year saw several companies face major greenwashing scandals with adverse reputational and financial impacts. One such example is DWS Group, accused of reportedly misleading investors for marketing its funds as greener than they actually were. Similarly, H&M was criticized for using an environmental scorecard system that allegedly misled customers about the sustainability of their products. These incidents help demonstrate the growing scope and complexity of activities that constitute greenwashing: extending from misleading consumers directly to pledges, certifications, and commitments that muddy the waters and make it easier for companies to benefit from setting future environmental goals without making real changes today. Regulators, investors, and civil society have been left to address the evolving problem. However, there have been a number of positive developments in the form of new initiatives and frameworks that aim to lend transparency to corporate behavior and eradicate greenwashing, including new regulation introducing financial penalties for making misleading environmental claims.

In May 2023, the European Banking Authority published a report that utilized RepRisk data on greenwashing to categorize misleading communication in the banking sector and measure the rise in its prevalence over time. While risk exposure is increasing in the sector, the study found that current and developing regulations could have a major impact. For instance, the EU taxonomy presents a common definition of sustainability and metrics to assess alignment with the regulation, lending structure and transparency to sustainability discourse.  In the UK, the Financial Conduct Authority is targeting greenwashing by evaluating ESG and sustainability claims made by asset managers, making it harder to market investments as green or sustainable without the accompanying ESG strategy.

Beyond the financial sector, progress is being made on the regulation of environmental claims. Proposed earlier this year, the EU Green Claims Directive would require companies to substantiate broad environmental claims like “carbon neutral” or “made from recycled materials.” The directive would target vague language, unclear comparative claims, or the use of broad environmental terms that cannot be approved by a certification, with infringement leading to potential legal consequences and financial penalties of up to 4% of turnover. In the US, pressure is increasing to update the Federal Trade Commission’s Green Guides, which aims to help companies avoid misleading environmental claims.

# Update from the 2022 greenwashing report

# Accelerating risk for companies in Europe and the Americas

At RepRisk, we capture greenwashing through the intersection of two ESG issue groups: any environmental issue and Misleading communication. This approach captures straightforward cases of greenwashing such as deceptive labeling as well as more complex situations such as political misalignment.

Over the past year, 1,850 companies were linked to a risk incident involving Misleading communication, with 1,160 (63%) associated with the issue for the first time. The data shows that greenwashing risk is not limited to public entities and private companies are also exposed. In line with other ESG Issues in RepRisk’s scope, private entity risk is substantial and 73% of greenwashing risk incidents captured over the past year involved at least one private company. Despite the risk related to private companies, public companies under greater scrutiny see this risk with more frequency: 12% of public companies with at least one risk incident in the past year were linked to Misleading communication, in comparison to 3% of private companies.

As more companies experience criticism for greenwashing practices, regional dynamics and trends provide another level of detail. Reviewing the latest year in data in comparison with our 2022 report, a clear pattern emerges: in Europe and North America, greenwashing risk exposure has accelerated.

# Greenwashing risk accelerates for companies headquartered in Europe and North America

Fig 2. Reflects the count of unique entities with at least one ESG risk incident linked to both environmental footprint and Misleading communication in a given year

For European, Asian, and North American companies, climate is a critical issue with approximately 54% of greenwashing risk incidents last year linked to Climate change, GHG emissions, and global pollution. For companies headquartered in Latin America and the Caribbean, the distribution of issues looks slightly different, with only 27% of greenwashing risk incidents last year linked to climate. For this regional segment, we observe a greater focus on Misleading communication around biodiversity, with risk incidents in the Mining industry playing a significant role.

To better understand what drives the acceleration of climate-specific greenwashing over the past few years, we reviewed how the distribution of contributing sectors has changed.

# Shifting breakdown of sectors linked to climate greenwashing

Fig 3. Based on count of ESG risk incidents linked to Misleading communication surrounding Climate change, GHG emissions, and global pollution. 2023 values reflect data from January to September at time of publication.

While industrial and extractive sectors with a high environmental footprint continue to constitute a large portion of greenwashing risk captured by RepRisk, 2022 and 2023 so far show a continuation of the trend of more diffusion of greenwashing risk across sectors. In particular, the Banks and Financial Services sectors displayed a notable increase in the number of greenwashing risk incidents, as also observed by the European Banking Authority.

# For financial institutions, sustainability claims and fossil fuel financing at odds

Over the past year, the Banking and Financial Services sectors saw a 70% increase in the number of climate related greenwashing risk incidents. Over 50% of these climate-specific greenwashing risk incidents either mentioned fossil fuels or linked a financial institution to an Oil and Gas company. RepRisk's methodology captures risk incidents that could materialize into direct adverse impact on the environment through their operations, as well as those that finance or invest in such companies and activities, for example companies that finance Oil and Gas activities. The association between financial institutions and fossil fuels is widely understood to be high risk, with investors calling for an end to the financing of new Oil and Gas projects. 

# Social washing on the rise: trends and insights

Social washing takes place when companies paint themselves in a positive light by obscuring an underlying social issue in an attempt to safeguard reputation and financial performance. As with greenwashing, social washing is driven by multiple interconnected factors, which can include changing consumer expectations, increased competition, and an evolving regulatory landscape. In our data, we define social washing as a contradiction between a positive image and an underlying social issue, such as Human rights abuses and corporate complicity, Child labor, or Impacts on communities, captured by the overlap of Misleading communication and social issues. On average, Misleading communication surrounding a social issue is 12% more severe than environmental claims, indicating the acuteness of the risk.2 When both environmental and social issues are involved, Misleading communication risk incidents are 20% more severe than greenwashing alone.

While most current research on social washing focuses on themes of diversity, Misleading communication around social issues can be found across a spectrum of topics. The figure below shows the number of risk incidents linked to each social issue in RepRisk’s research scope and the issue of Misleading communication over the past five years. Importantly, social issues can go hand in hand with environmental issues, for example, when pollution impacts local communities. To distinguish social washing from greenwashing, we first focus exclusively on incidents related to social issues.

# Breakdown of social washing issues

Fig 4. Global ESG risk incidents linked to both Misleading communication and a social issue, Sep 2018 - Sep 2023, 1116 incidents total

Social washing around Human rights abuses and corporate complicity can be seen in the Software and Computer Services sector where risk incidents are linked to Privacy violations and Supply chain issues. While sometimes overlooked, data privacy is a human right and instances of hollow promises of data protection can materialize into adverse financial and reputational impacts for companies, with the global average cost of a data breach reaching USD 4.45 million this year. Further, risks related to data privacy can materialize into adverse impacts for the consumer, as well.

Masking of human rights issues also takes place in the Travel and Leisure sector around instances of discrimination and negligence. Another employee relations issue, Poor employment conditions, is critical in the Retail and Food and Beverage industries, around topics such as Supply chain issues, Migrant labor, and Salaries and Benefits.

The practice of social washing escalates at a slower rate than greenwashing. The number of strictly social washing risk incidents, those without an environmental component, increased 15% over the past year (September 2022 – September 2023) from the year prior, in comparison to 35% observed for instances of strictly greenwashing. In the following sections, we explore the similarities between the two practices and look at real examples of social washing.

# Same players, same game

We reviewed a sample of risk incidents linked to social issues and Misleading communication to better understand how the risks take shape. Companies employ many of the same tactics in social washing as with greenwashing, such as selective disclosure or symbolic management. The intent is the same: to achieve a competitive edge by projecting an image of sustainability. Often the same companies are involved, looking to capitalize on this perception. When looking at cases in which incidents are linked to solely greenwashing and social washing respectively, 18% of companies linked to greenwashing in the period from September 2018 – September 2023 were also linked to social washing, increasing to 31% when only publicly listed companies are considered.

# Greenwashers more likely to social wash

Fig 5. Share of companies linked to strict incidents of social washing from Sep 2018 – Sep 2023, based on whether they have been linked to greenwashing risk incidents

Greenwashing and social washing are often intertwined - companies involved in greenwashing seem to be more inclined to utilize social washing strategies. Through five varieties of greenwashing discussed in the literature, we draw similarities between the two practices, applying the same constructs to cases of social washing.

Category Social issue Sample ESG risk incident

Selective disclosure

Discrimination in employment

While CEO of a US talent management company publicly pledges to achieve gender equality in leadership positions, nearly a dozen women have filed complaints alleging mistreatment and abusive behavior from managers.

Empty green claims and policies

Local participation

Liberian mining company criticized for reportedly failing to fulfill past promises to local communities.

Misleading narrative and discourse

Occupational health and safety

American apparel producer criticized for reportedly failing to sign collective agreement on safety standards after Rana Plaza incident, instead marketing their own plan.

Dubious certifications and labels

Poor employment conditions

Amid labor law violation at Polish software company, critics claim "Great Place to Work" certificates are paid advertising and underlying workplace evaluation surveys are allegedly inconsistent.

Corporate political action

Social discrimination

Animation studio employees accuse executives of allegedly censoring LGBTQ content and funding anti-LGBTQ legislators, contradicting inclusive public image.

The risk incidents above represent a sample of the common forms of social washing that can be found in analysis of ESG risk data. Often the themes are more complex, crossing into other pillars of ESG risk, as shown in the following sections.

# Behind the curtain: a characterization of social washing by sector

Corporate involvement in social washing can occur internally to the company, as with workplace discrimination or occupational health and safety issues, or externally, as with social discrimination or impacts on communities. Companies are exposed to varying inherent risks based on their industry and location.

# Social washing trends by sector

Count of risk incidents linked to misleading communication

Fig 6. Annual risk incidents linked to employee and community relations3

While industrial sectors like Extractives and Utilities often mislead about their external impacts, such as Impacts on communities and Local participation, Retail and Technology are more frequently associated with social washing in the workplace. The Food and Beverage and Financial sectors have seen an increase in both forms of social washing in recent years.

# Interconnected by nature

In many cases, it makes sense to assess Misleading communication around environmental and social issues simultaneously. This holds especially true for community relations issues, like Impacts on communities and Social discrimination. The data shows that, more often than not, greenwashing has a social component: 55% of the greenwashing risk incidents captured over the past five years had a social element. Often companies make broad commitments under the umbrella of sustainability, promising positive change for both the environment and communities.

The environment and society operate in an intertwined manner: environmental issues often have adverse impacts on communities while social issues can have environmental consequences. Understanding the interconnectedness of these risks is critical and requires enhanced assessment frameworks backed by robust environmental and social datasets that provide a holistic assessment of a company’s ESG performance,” says Avleen Kaur, ESG Research Lead at RepRisk.

The following table shows three ways greenwashing and social washing overlap:

Intersection between greenwashing and social washing

Format Issues Sample ESG risk incident

Greenwashing with social consequences

Climate change, GHG emissions, and global pollution; Social discrimination

Despite commitment to combat climate change, Canadian bank criticized for allegedly funding oil and gas projects in the US, linked to not only global pollution, but also environmental racism, creating disproportional risk for communities of color.

Social washing with environmental consequences

Local participation; Local pollution

El Salvadoran poultry producer criticized for manipulating public consultation, promising employment opportunities, while reportedly failing to disclose risk to water sources and local environment.


Impacts on communities; Impacts on landscapes, ecosystems and biodiversity

Brazilian biofuels company criticized for alleged deforestation and impacts of monocultures on indigenous communities, while publicizing commitment to environmental issues and traditional communities.

# Next steps: tackling greenwashing and social washing

The drivers of greenwashing and social washing include increased demand for sustainable products and companies, as well as the expectation of competitive advantage derived from an image of sustainability. A lack of standardization and accountability around a rapidly evolving landscape of corporate sustainability are also contributing factors. Despite this, in recent years symbolic sustainability has backfired for many as media, regulators, and civil society have challenged unfounded claims. Emerging regulations have begun to tackle the issue by defining what constitutes sustainability and addressing the drivers of misleading communication. For these regulations to be applied effectively, there is a need for consistent, high-quality data around greenwashing and social washing practices. An independent, outside-in perspective can provide confidence that companies are acting in alignment with environmental and social commitments.

The data shows that Misleading communication on ESG issues and attention to the trend are on the rise. Beyond greenwashing, deceptive social responsibility tactics are also in the spotlight and frequently more severe. A qualitative review of risk incidents indicates that cases of Misleading communication are rarely straightforward. Often greenwashing has social implications and vice versa. To understand these complexities and spot greenwashing and social washing in action, regulator, investor, and consumer awareness and education are critical. RepRisk systematically identifies and assesses ESG and business conduct risks that can materialize into adverse reputational, compliance, and financial impacts for a company, and adverse impacts for people and planet. As greenwashing and social washing continue to evolve, RepRisk has comprehensive data to separate empty promises from real progress.

Looking towards the near future, we expect to see the advancement of guidelines and regulations that help decipher misleading communication from true sustainability throughout the entire value chain. While environmental issues are often at the forefront of ESG discussions, we anticipate the measurement of social risk and scrutiny of social washing will rise on agendas.

[1] Throughout this report, ESG Issues in RepRisk’s research scope are capitalized. For clarity, the Issue of Misleading communication (including greenwashing) is referred to simply as Misleading communication.
[2] At RepRisk, severity is measured as a function of three dimensions: firstly, what are the consequences of the risk incident; secondly, what is the extent of the impact; and thirdly, was the risk incident caused by an accident, by negligence, or intent, or even in a systematic way.
[3] Workplace (Employee relations) issues include Poor employment conditions, Occupational health and safety issues, Freedom of association and collective bargaining, Forced labor, Child labor, and Discrimination in employment; Community relations issues include: Impacts on communities, Local participation issues, and Social discrimination

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