One in four climate-related ESG risks globally were linked to greenwashing in the last 12 months, a report by RepRisk reveals, an increase from one in five compared to last year’s report.
ESG (Environmental, Social and Governance) risks are environmental, social, and governance factors that could harm a company’s finances or reputation, such as greenwashing.
Data science company RepRisk also found the banking and financial services sectors saw a 70% increase in the number of climate-related greenwashing incidents in the last year. Over 50% of these climate-specific greenwashing risk incidents either mentioned fossil fuels or linked a financial institution to an oil and gas company, the research shows.
RepRisk says the European Banking Authority utilised its data on greenwashing to categorise misleading communication in the banking sector and measure its prevalence in the European Union earlier this year.
31% of publicly listed companies linked to greenwashing from September 2018 to September 2023 were also linked to social washing, according to the report. Social washing is when companies make “misleading claims” about their social responsibility to paint themselves in a positive light and obscure an underlying social issue.
The expectation of competitive advantage derived from an image of sustainability has opened the door to green and social washing.
According to RepRisk’s findings, the most common social washing issues in both the UK and the US are human rights abuses and corporate complicity, which account for 26% and 25% of each nation’s incidents respectively.
Green and social washing are often linked, RepRisk found, with 55% of greenwashing risk incidents globally having a social component. In the US, 44% of companies linked to greenwashing also have a record of social washing, compared to 39% in the UK and 31% globally.
RepRisk says while greenwashing incidents have accelerated globally, the practice has experienced “significant growth” in Europe and the Americas.
The structure of greenwashing has “evolved and become more complex”, RepRisk says. The company claims greenwashing now goes beyond directly misleading consumers as its scope extends to include pledges, certifications, and commitments.
RepRisk says a “lack of accountability” obscures greenwashing and makes it possible for companies to benefit from setting future goals, without addressing issues head-on.
Dr Philipp Aeby, CEO and Co-Founder of RepRisk commented: “The expectation of competitive advantage derived from an image of sustainability has opened the door to green and social washing.
“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 criticise unfounded claims.
“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.”