S&P Global Ratings said in a report titled “The Fear Of Greenwashing May Be Greater Than The Reality Across The Global Financial Markets” that they believe sustainable bond issuance including green, social, sustainability, and sustainability-linked bonds could now collectively exceed $1 trillion in 2021.
But investors and regulators are increasingly sounding the alarm about companies that exaggerate or misrepresent their environmental track record, aka greenwashing.
Academics at University College Dublin wanted to get to the bottom of this and thus developed algorithms to help the financial services sector detect and quantify greenwashing.
What is greenwashing?
Greenwashing encompasses everything from claims of being environmentally friendly to outright falsehoods. It can provide investors, consumers, and policymakers with a false sense of security that a business is actually making progress in the fight against global warming.
“Companies are spinning one story after another,’’ said Andreas Hoepner, a professor in banking and finance at University College Dublin who is overseeing the analysis. “If no one checks them, they can say what they want. And since sustainability is such a broad term, it’s easy for companies to create a story that detracts from the real issues.”
That’s all the more pertinent after a landmark UN report published last August 9 in which climate scientists state unequivocally that humans are responsible for global warming. They warn that the planet’s average temperature will surpass 1.5° Celsius over pre-industrial levels in the next two decades unless drastic moves to cut greenhouse gas emissions are made.
Hoepner and his team, called GreenWatch, are using artificial intelligence to parse media statements, websites, and other corporate communications for sustainability claims by 700 global companies.
They then compare those pro-environmental statements with a company’s carbon footprint to see whether it is cutting carbon emissions by 7% year-on-year in order to meet 2050 net-zero targets.
The group also focuses on what companies say about climate change: from whether they merely agree that global warming is something that needs addressing to stating outright they are climate leaders.
GreenWatch’s early findings show that there’s a high likelihood of greenwashing in 95% of the statements they analyzed from communications companies, which includes telecommunications and media businesses.
Meanwhile, more than 80% of statements from corporations in the industrials, materials, and consumer discretionary sectors have a high likelihood of greenwashing. But less than half of the statements from energy companies had a likelihood of greenwashing, GreenWatch found.
Geographically, 84% of statements from Japanese corporations had a high likelihood of greenwashing, the most globally, GreenWatch said. The U.S. followed with almost 75% of statements.
UAE’s greenwashing regulations
Recent research from Quilter revealed Middle East investments not being what they claim to be was identified by 44% of investors as being their biggest worry when it came to environmental, social and corporate governance (ESG) investing.
Sustainable investing continues to gather momentum as a fundamental change to the investment industry after being frequently disregarded a few years ago.
Companies seeking to capitalize on the demand for sustainable products have marketed their products with green – or healthy – labels where underlying processes or materials are not. As these organizations have been called out, their reputations have suffered.
Gulf News reported on a survey showing 60% of UAE respondents felt that responsible investing is now important to them, providing a useful bridge between generations.
With a lack of deep knowledge or authentic commitment, there is a risk of greenwashing. As a result, some investors may be misled, inadvertently or not, to buy products where the advertised sustainability approach or outcome does not match the reality.
The EU introduced a classification system, or EU Taxonomy, to determine what counts as green and sustainable activities.
In the UAE in 2018, Dubai Financial Services Authority issued the Green Bond Best Practice Guidelines and, in 2019 Dubai Financial Market issued an ESG Reporting Guide. Most recently, the Securities and Commodities Authority (SCA) announced that listed companies will be required to disclose their sustainability reporting.
Fashion and fossil fuel greenwashing
The fashion industry’s carbon footprint outweighs that of international flights and shopping combined, cites The State of Fashion 2020 which also mentions that fashion accounts for 20-35% of the microplastic that flows into the ocean.
Deceptive moves include launching sustainable capsule collections when the rest of a brand’s production line remains pollutant and wasteful or claiming to protect the environment by using natural fibers, while a label has these garments made in factories with bad working conditions.
UAE’s Goshopia provides an online retail platform for sustainable fashion brands, as well as the monthly Sustainable Souk in Dubai.
If a brand says that its products are 100% organic cotton or cruelty-free, it is important to check whether this has been certified by credible sources, although smaller brands are often hindered from obtaining such accreditation due to the high costs associated with acquiring such labeling.
A new report from environmental law firm ClientEarth unveils the extent of “greenwashing” pursued by fossil fuel companies.
The report looks at the advertising from nine of the world’s largest fossil fuel industries and compares their public claims with indicators on their business operations and their progress in meeting safe climate change targets.
The results are striking.
“Our analysis shows that their publicity routinely misrepresented the sustainability of their activities, avoided the full scale of their greenhouse gas emissions, overrepresented clean energy investments, and promoted commercially unproven ‘solutions’ to ongoing fossil fuel production,” ClientEarth said.
It gave the example of Saudi Aramco which published ads in newspapers in which it branded itself as a ‘sustainability company’ where previous findings show it as one of the world’s largest corporate emitters of carbon emissions.
For ExxonMobil, the company’s algae biofuel project has been criticized for being a token project and for its lack of economic feasibility. The fossil fuel company is still heavily invested in fossil fuels and only spent 0.14% of its 2020 capital expenditure on biofuels.
Research from Clemens Kaupa in the Journal of European and Consumer Market Law shows that these advertising strategies are blurring the lines between what is true or not and making it increasingly difficult for us to judge the validity of these companies’ claims.
“They [fossil fuel companies] have invested in reputational advertising that positions themselves as trusted partners to wider society and promotes the role fossil fuel companies play in the climate transition,” Client Earth says.