Greenwashing among companies worldwide has declined in the past year, according to the latest annual report on the topic, providing valuable insight into a key sustainability risk for financial institutions and non-financial corporations.
The study, conducted by Switzerland-based ESG risk data specialist RepRisk, examines greenwashing by analyzing publicly available sources. Their report found that there were 12 per cent fewer companies linked to greenwashing in the past year compared with the previous 12 months. That’s the first drop in six years.
Nevertheless, the report found that high-risk cases rose by more than 30 per cent, suggesting that misleading claims made in corporate communications were more systemic and consequential within some organisations. Alternatively, the result indicates that issues reported in 2024 were the same as those found in 2023 but that had remained unresolved. That thesis is supported by further findings that a large proportion of greenwashing instances were committed by repeat offenders.
Alexandra Mihailescu Cichon, chief commercial officer for RepRisk, said that while the report results showed differences in experiences across countries, it indicated that regulations to end greenwashing were having the desired effect.
“The incidents are coming from a very high peak of growth, so the decline is modest comparatively, but it is a decline,” Mihailescu Cichon told Data Management Insight. “It reflects the fact that companies have started to see this as a material issue and are actively looking to mitigate exposure to this. We think that it really represents a pivot in the market.”
Latest Report
RepRisk launched its greenwashing report in 2022 to monitor a scourge that has not only undermined credibility in corporate ESG performance claims but has also given ammunition to anti-ESG campaigners. For investors, greenwashing is a risk factor because it erodes the credibility of the offending companies and exposes them to reputational and, increasingly, regulatory censure.
The report, entitled “A turning tide in greenwashing? Exploring the first decline in six years”, said that 1,841 incidents of misleading communications were recorded in connection with 3,868 companies in the 12 months through September. More than two-thirds of those were private companies.
Europe accounted for the single-largest number of incidents followed by the US and Canada. Asia, Latin America, Africa and Oceania followed in order.
Split Picture
Mihailescu Cichon said that there were stark geographical differences in the data, which showed a “tale of two sides of the Atlantic”. While the US saw a slight uptick in the number of greenwashing incidents, Europe experienced a 20 per cent drop.
In Europe, she said, the decline was most closely correlated to “regulations coming into full swing”. While many regulations, including those around consumer protection, consumer awareness and product circularity were yet to be implemented, “the fact that they’ve been talked about at the legislature level has signalled to companies that there will be more, clear guidance and a more specific operational framework around the topic of greenwashing”.
The data also showed that the sharpest rise in the proportion of higher risk cases was in Europe. Mihailescu Cichon said this illustrated how greenwashing incidents can take time develop. She cited the example of German asset manager DWS, which was penalised by regulators more than a year after its offices were raided by enforcement officers in 2022.
“These have tended not to be one-off cases, which is why the severity would increase as they are considered systematic,” she said.
American Reticence
In the US, where regulations have been slower to land on statute books, RepRisk said there was a greater propensity towards greenhushing – corporate reluctance to communicate on ESG for fear of scrutiny and to avoid condemnation by political forces opposed to sustainability investing. While the report data shows greenwashing peaked in the Americas in 2022, the following years were marked by growing politicisation of ESG.
Fuel was added to that trend last year, Mihailescu Cichon said, when BlackRock chief executive Larry Fink – an early champion of values-led capitalism – failed to mention ESG in his annual letter to investors for the first time in many years.
Positively, the RepRisk executive said that a greater global understanding of the risks associated with greenwashing and regulatory determination to stamp it out, coupled with a coalescence of standards on how ESG performance should be measured, has helped to improve the situation for investors.
Nevertheless, she sees broad scope for improvement, much of which can be met through data. RepRisk, for instance, will incorporate the findings from the report into its own ESG products, offering investors visibility into the greenwashing risks of the companies they back.
“Regardless of the regulations that have been put in place across the globe and regardless of the various disclosure frameworks available today, we believe there’s always going to be a need for data for investors to see what’s behind those disclosures that go to the regulators or go into these frameworks,” she said.
“Data that is based upon information from outside of the company from these external sources, will continue to act as a valuable mirror to all the reporting and disclosures that companies do, and that serves as an antidote to greenwashing.”
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