Greenwashing is on the rise since the signing of the Paris Agreement in 2015, and regulators, investors, and consumers are on the lookout for companies’ potentially misleading claims about their sustainability work.
In this Q&A, Alexandra Mihailescu Cichon, chief commercial officer at RepRisk, dives into what companies and investors should know about this scrutinized practice. RepRisk, a Switzerland-based Environmental, Social, and Governance (ESG) data science company, works with some of the world’s largest banks, investment managers, and corporates to identify and assess ESG and greenwashing risks.
Cichon discusses how to peel back the onion to know if companies “walk their talk.” She advises on how to spot greenwashing red flags across supply chains. She explains why to be leery of self-reporting. And she illuminates industries with the highest greenwashing incidents.
Waste360: Tell us of RepRisk’s work around ESG risks and why companies should consider those risks
Cichon: We combine artificial intelligence (AI) and human intelligence to identify and assess ESG risks. In doing so, we enable clients to proactively mitigate risks that can materialize into adverse reputational and financial impacts for the company and its shareholders, or adverse impacts on people and / or the planet.
Essentially, our data is an antidote for greenwashing. We assess how companies conduct their business – do they walk their talk when it comes to human rights, labor standards, corruption, and environmental issues?
Waste360: Who are some of your clients and what brings them to you?
Cichon: We work with over 550+ clients, including 80+ of the world’s leading banks, 17 of the 25 largest investment managers, the world’s two largest sovereign wealth funds, the world’s biggest corporates, and the world’s leading index providers for due diligence and risk management across their investments and operations.
Waste360: Where are greenwashing messages common, and how do you spot them?
Cichon: Greenwashing can be found in all types of company messaging, including sustainability reports, advertising, and even internal communications. A company can use messaging as a vehicle to greenwash their conduct; by obscuring the truth, they can be perceived in a positive light. Ultimately, the greenwashing message and the actual business conduct are not aligned.
Waste360: How do companies tend to put themselves at risk for being identified as “greenwashers”?
Cichon: Any instance where a company claims to be ‘net-zero,’ ‘green,’ or ‘ethically sourced,’ they are at risk of overstating and potentially greenwashing because those terms are not well-defined. Regulators in Europe and the United States have implemented some guidelines, but we continue to see a need for better definitions and a better understanding of greenwashing to address its causes and drivers.
Waste360: How can investors identify greenwashing in their portfolios? And or when they vet potential new investments?
Cichon: First and foremost, investors and companies need clear and reliable data for decision-making, produced with a transparent methodology.
RepRisk helps clients circumnavigate risk by illuminating them when they would have otherwise been obscured by greenwashing. We do this by intentionally excluding company self-disclosures, instead analyzing 100,00 sources in 23 languages on a daily basis – including print media, online media, social media, blogs, government bodies, regulators, think tanks, newsletters, and other online sources. These sources range from the international to the regional, national, and local level. This outside-in perspective allows investors to spot where their portfolio or future investments may be facing risks of greenwashing – or any other ESG and business conduct risk – early.
Waste360: What are your thoughts on self-reported information?
Cichon: Self-reported information is not reliable, especially when it comes to risks. Company self-disclosure is also often outdated and does not meet investors’ needs for ongoing and timely monitoring to evaluate their portfolios and conducting due diligence on new investments.
Waste360: What is most important for companies to know about greenwashing as it applies to their businesses?
Cichon: Greenwashing is not a trivial offense. Misinformation and mischaracterization of performance poses a threat not only to credibility, but also to our collective ability to transition to a sustainable future. Companies should know that greenwashing is shortsighted. It poses reputational and financial risks to themselves, and risks that could potentially materialize into adverse impacts on people and planet.
Data that is risk focused and based on sources outside of the company can illuminate on-the-ground business conduct, helping companies identify and assess risks in their supply chains – where it is often hard to obtain reliable information across countries and entities, including for small and private companies or infrastructure projects.
Waste360: What is most important for investors to understand about greenwashing?
Cichon: Investors should know that greenwashing can be difficult to identify. For an investor evaluating the risks in their portfolio, they must consider the industry or sector and regional landscape of their investments. Sometimes, greenwashing is a misalignment of actions and words (such as lobbying for one issue and publicly supporting the opposite) or setting a public target that is close to unachievable and uncovering it requires a lot of information that is not always easily accessible.
Waste360: Are some industries appearing to do more greenwashing than others?
Cichon: RepRisk’s research shows that extractive sectors (such as mining, oil, and gas), financial services, and food and beverage have the highest incidence of greenwashing.
Waste360: How can you tell the “good guys” in these industries that have a bad rap?
Cichon: With the right data – meaning company-specific, granular, and timely data that is sourced externally. Investors and companies need to set clear, measurable criteria for sustainable business conduct in the sector they operate or invest in – and then source the right dataset to base their decisions on. From our lens, we look at risk – e.g., high risk or low risk (or somewhere in between), when it comes to overall ESG risk or specific issues like human rights.
Waste360: How should investors leverage data to identify greenwashing?
Cichon: My best advice is to be relentless in pursuit of the full picture of company business conduct and rely on datasets that are robust, transparent, and based on sources that do not intend to obscure the truth – in other words, look beyond company disclosures!
Without a clear, universal definition, identifying greenwashing requires a nuanced approach depending on the company, sector, location, and other factors. RepRisk’s team of analysts in conjunction with sophisticated AI generate due diligence-grade data and make this approach easier, as greenwashing can take different forms depending on the company and context.
Waste360: Why is greenwashing risk on the rise for European- and U.S.-based companies?
Cichon: There is more pressure than ever for companies to minimize their adverse impact on the world, and some companies have overstated their sustainability progress. In our data, we observe a stark increase over the past several years of greenwashing incidents. Recent regulations have given companies new compliance measures to follow, and increased stakeholder pressure leads some companies to make bold promises about future goals and targets like net zero.
Interestingly, we see that greenwashing is often intertwined with social washing – and we are excited to launch our new research on this topic in early October. We hope that understanding the interconnectedness of ESG helps investors and companies identify and prevent both issues better in the future.