October 09, 2024, Zurich, Switzerland
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.
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.
# Greenwashing shift in major markets: A closer look at US, UK, and EU
Figure 1: Reflects the count of companies with at least one ESG risk incident linked to both environmental footprint and Misleading communication in a given year.
# Low-severity greenwashing incidents decline, high-severity incidents rise
Figure 2: Reflects the change in global greenwashing incidents by 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 andbiodiversity. 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
Founded in 1998 and headquartered in Switzerland, RepRisk is a global technology company that provides transparency on business conduct risks like deforestation, human rights abuses, and corruption. RepRisk enables efficient decision-making for clients and supports alpha generation and value preservation for their organization, investments, and business interests. RepRisk is trusted by 80+ of the world’s leading banks, 17 of the 25 largest investment managers, corporates, and the world’s largest sovereign wealth funds for their due diligence processes. RepRisk uses human curation and cutting-edge artificial intelligence to generate the world’s most comprehensive business conduct and biodiversity risk datasets on public and private companies, real assets, and countries.
Visit us at www.reprisk.com.
