RepRisk data shows decrease in greenwashing for first time in six years, but severity of incidents is on the rise
Research by RepRisk reveals a 12% year-on-year decrease of companies linked to greenwashing, signaling a major shift in corporate behavior
- Despite an overall decline, high-risk cases of greenwashing surged by over 30%.
- Nearly 30% of companies linked to greenwashing in 2023 were repeat offenders in 2024.
- While the Banking and Financial Services sector experienced a 70% increase in climate-related greenwashing risk last year, this year's report reveals a 20% decrease.
ZURICH, Oct. 9, 2024 /PRNewswire/ -- New research from RepRisk, a global leader in ESG data technology, shows a 12% decrease in greenwashing risk globally across all sectors during the year ending in June 2024. This is the first such decrease in six years.
RepRisk's third annual greenwashing report finds this is likely the result of increased regulatory measures and companies engaging in greenhushing out of fear of pushback from stakeholders, especially consumers, investors, and regulators. While the prevalence of incidents has fallen, the number of severe greenwashing cases has increased by 30%, indicating there is still work to be done.
"Stakeholders are more aware of greenwashing risk than ever before," commented Dr. Philipp Aeby, CEO and Co-Founder of RepRisk. "While regulators have successfully pushed forward legislation to deter greenwashing, the risk will keep evolving as new forms emerge, leaving companies open to reputational damage which impacts their bottom line. Greenwashing is often driven by corporate narratives. To uncover it, investors and companies should rely on what external sources reveal about these claims."
The fall in net cases underlines that companies are increasingly cognizant that greenwashing is a material offence and are taking proactive steps to mitigate exposure. This is an encouraging sign for governing bodies banking on pending and active greenwashing legislation to instigate change.
However, RepRisk data found that 30% of all companies linked to greenwashing in 2023 were also flagged in 2024. This indicates that while public perception is having a big impact on the overall downward trend, more regulation, coupled with transparent data, is needed to reduce protracted cases and tackle the growing number of severe incidents.
The report also signals a significant shift in the greenwashing landscape of Banking and Financial Services. While the sector experienced a 70% increase in climate-related greenwashing from 2022 to 2023 – a trend also reflected in a report from the European Banking Authority published this summer – new RepRisk data reveals a 20% decrease in incidents globally across the sector from 2023 to 2024. Just over a third (36%) of financial companies linked to greenwashing last year were also linked to greenwashing in 2024, slightly above the 30% average across all sectors.
It is clear that regulation has had an impact on the overall downward trend. The UK saw a relatively modest reduction in incidents of 4%, whereas there was a 20% decline in the EU, which led the regulation wave based on the sheer volume of legislation that went into effect in the past 12 months. For example, the EU's Green Claims Directive mandates that companies substantiate their environmental claims with robust evidence, contributing to a reduction in incidents across the continent.
However, regulation may not be the sole driver, as US greenwashing trends paint a different picture. Greenwashing cases in the US peaked in 2022, with 503 incidents – a 35% year-over-year increase from 2021. This was followed by a 10% decline in 2023 and a modest 6% rise in 2024. One possible explanation for the divergence in the US is the increasing politicization of ESG. The earlier decline may be linked to companies and funds becoming more cautious about promoting their green credentials, responding to pressure from investors, state attorneys general, and other state-level political figures opposed to considering ESG criteria in investments.
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Figure 1. Year-on-year trend of companies linked to greenwashing in US, UK, and EU
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Figure 2. Global trends in greenwashing risk severity
Notes to Editors
RepRisk captures greenwashing through the intersection of two criteria: (1) misleading communication and (2) an environmental issue such as local pollution or impacts on ecosystems and biodiversity. ESG risk incidents in this scope may include 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.
By excluding company self-disclosures in its data generation, RepRisk illuminates business conduct risks that could otherwise be obscured and could materialize into adverse impacts.
RepRisk determines severity as a function of three dimensions: firstly, the consequences of the risk incident (e.g., the scale of actual environmental repercussions relative to the green claims); secondly, the extent of the impact (e.g., one person, a group of people, a large number of people); and thirdly, whether the risk incident was caused by accident, negligence, or intent, or even in a systematic way. There are three levels of severity: low severity, medium severity, and high severity.
To provide more up-to-date data, RepRisk has discontinued the use of calendar years. While the 2023 report presented results based on both calendar years and the period from September 1, 2022, to August 31, 2023, the 2024 report adopts a uniform timeframe from July 1 to June 30 for all years from 2019 to 2024.
Later this year, RepRisk will expand its methodology by introducing six new Topic Tags. Alongside Greenwashing, the new tags will include Artificial intelligence, Deforestation, Ecocide, Mercury, and Social washing.
About RepRisk
RepRisk is a global leader in identifying and assessing business conduct and ESG risks for organizations worldwide. RepRisk focuses on what companies may not disclose, uncovering risks such as deforestation, human rights abuses, and corruption, giving stakeholders a clearer view of their business relationships and investments.
Through a combination of advanced AI with human expertise in 23 languages, RepRisk delivers daily updated data on business conduct risks for organizations of all sizes. RepRisk's transparent and consistent methodology, refined over nearly two decades, transforms risk incidents into actionable insights to conduct due diligence and mitigate risk exposure.
RepRisk saves clients valuable time on research and analysis, empowering decision-makers to make fast, informed decisions that protect their interests, enhance value, and promote sustainability. Trusted by over 80 of the world's leading banks, 17 of the 25 largest investment managers, top corporations, and the world's largest sovereign wealth funds, RepRisk sets the global standard for business conduct data.
Visit us at www.reprisk.com.
Contact:
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SOURCE RepRisk
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