Dive brief:
- Companies making misleading environmental claims, or greenwashing, accounted for 25% of climate-related risk incidents between September 2022 and September 2023, up 20% from the same period a year earlier, according to ESG research and data company RepRisk. The report examined both public and private companies, globally and by sector.
- RepRisk’s report documented cases of greenwashing rising by 35% overall last year, with greenwashing in the financial and banking sectors increasing by 70%. Behind the oil and gas industry, the financial sector has the second largest share of incidents in the past two years.
- Eighteen percent of companies—and 31% of public companies—that have engaged in greenwashing since 2018 also engaged in social laundering, or making misleading social claims, in the past year.
Diving knowledge:
RepRisk said it identified growing and more complex greenwashing risks in Europe and North America, as companies go beyond misleading consumers through direct communications and seek to receive certificates and pledge to strengthen their appearance of being more sustainable
The report by RepRisk, which helps clients identify, monitor and manage ESG-related risks, said 25% of the climate-related risks it documented since last September were related to greenwashing.
Climate change and fossil fuel problems were common topics of misleading claims. According to the report, fifty-four percent of companies in Asia, Europe and North America washed their records on greenhouse gas emissions, global pollution and other issues related to climate change. The financing of fossil fuels was one of the main drivers of the concentration of greenwashing in the financial and banking sectors. More than half of the documented industry claims mentioned fossil fuels or linked a financial institution to an oil and gas company.
“The expectation of competitive advantage derived from an image of sustainability has opened the door to green and social washing.” Philipp Aeby, CEO of RepRisk, said in a statement. “The lack of accountability around a rapidly evolving corporate sustainability landscape has helped keep this door open for a long time.”
Companies that engage in greenwashing, or what Aeby called “symbolic sustainability,” may have expected praise, but instead have received more public criticism for their misleading claims. Aeby said companies need transparent data to assess their exposure to environmental and social risks.
The report was also RepRisk’s first effort to document social laundering, which the group defines as contradictions between a company’s image and actual behavior on social issues. The report looked for misleading communications on issues such as human rights, occupational health and safety, community impact or child labour.
The company found that many of the social problems were closely related to environmental problems, documenting 1,544 environmental and social problems. Not only are companies that greenwash more likely to be socially unwashed, but they use similar playbooks and tactics such as selective disclosure, token gestures, and corporate political action. Misleading communications about social issues (1,116 documented) without an environmental component increased by 15% last year, but at a slower rate than environmental-only risks at 35%.
With greenwashing becoming more frequent and complex, the Securities and Exchange Commission recently has updated the “Names Rule” of the Investment Company Act to reduce misleading communications from the investment industry. SEC updates require investment firms that have a specific focus in their name, such as ESG or sustainable funds, to invest 80% of their funds in assets that serve that purpose.
Funds with more than $1 billion in assets will have 24 months from November 13. the date of entry into force of the rule — to meet, while funds with less than $1 billion will have 30 months. SEC Chairman Gary Gensler said the amendments were necessary after the past two decades of development in the investment industry led to loopholes in the rule.
