Spotting greenwashing with ESG data
# July 2022
# Painting the town green
Misinformation and minimization of ESG risks pose a threat not only to credibility, but also to our collective ability to transition to a sustainable future. While regulation is stepping in with good intentions, investors and consumers need to do significant research, reading the fine print and assessing actions, to determine the truth behind sustainability claims. Identifying meaningful data to support this process presents a challenge, with traditional ESG ratings often masking underlying risks and varying across providers.
How can an outside-in approach to ESG help investors spot greenwashing in their portfolios? In this article, we introduce RepRisk’s unique perspective on greenwashing risk, review trends based on historical data, and look at greenwashing through the lens of two facets of this issue: climate lobbying and climate compensation. We find that in recent years, climate change is increasingly the subject of greenwashing and ESG risk data indicates the rising accountability of climate action across sectors.
# The role of ESG data in spotting greenwashing
Greenwashing misleads consumers and stakeholders to view a company’s environmental footprint in a more positive light. At RepRisk, we capture greenwashing through the intersection of two ESG issues, flagging incidents when companies are involved in misleading communication on the environment. ESG risk incidents in this scope may include events such as criticism of an advertising campaign deceiving consumers on environmental impacts, research findings revealing that a company is overstating the impact of an initiative, or coverage of company actions in direct contrast to climate commitments.
We focus solely on risk by analyzing public sources and stakeholders for information that tells us what the world is saying about a company. This perspective circumvents greenwashing by capturing the impact of a company rather than its messaging– and helps investors assess a company to make better investment decisions and move the world toward sustainable capital allocation.
# Ten years of greenwashing data
With an ESG dataset dating back to 2007, RepRisk has a unique perspective on the evolution of issues as the ESG industry has grown. Reviewing the past ten years of data (2012-2022) linked to greenwashing, we observed an increase in the number of such incidents and a shift in the regions, topics, and sectors involved.
# Greenwashing risk escalating for companies headquartered in Europe and the Americas
*Reflects the count of unique entities with at least one ESG incident linked to both environmental footprint and misleading communication in a given year.
Source: RepRisk ESG data science and quantitative solutions, www.reprisk.com