Minimising ESG risks poses a threat to a sustainable future, RepRisk says


Misinformation and minimisation of ESG (Environmental, Social and Governance) risks pose a threat not only to credibility but also to the world’s collective ability to transition to a sustainable future, RepRisk says.

The Zurich-based organisation says that 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.

Greenwashing increased around the signing of the Paris Agreement in 2015, which brought public attention to the issue, the RepRisk report says.

What we’re starting to see more regularly, is companies being criticised earlier in the process, before greenwashing occurs.

RepRisk captures greenwashing through the intersection of two ESG issues, flagging incidents when companies are involved in misleading communication on the environment.

Identifying meaningful data to support this process presents a challenge, with traditional ESG ratings often masking underlying risks and varying across providers.

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.

With an ESG dataset dating back to 2007, RepRisk says it 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, it says they observed an increase in the number of such incidents and a shift in the regions, topics, and sectors involved.

In 2021, the practice was highly criticised in Europe and the Americas, with many such incidents coming from low reach sources. These incidents could include criticism from a lesser-known NGO or coverage of legal proceedings by a local newspaper, RepRisk says.

ESG Research Lead at RepRisk, Tess Dury, said: “With the increase in regulatory initiatives specifically coming out of the European Union and North America (i.e.: the SFDR, the EU Taxonomy), companies are being held much more accountable to their carbon reduction targets and general climate policies and disclosures.

“This scrutiny is reflected in mainstream media, as the companies acting with impunity in the face of their climate commitments are now being called out publicly, which is reflected in our research.

“What we’re starting to see more regularly, is companies being criticised earlier in the process, before greenwashing occurs. For example, not abiding by legal requirements for their disclosures, as with a bank improperly implementing a green credit policy.”

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