'Greenwashing often stems from poor ESG data measurement'

29 June 2023 Consultancy.uk 4 min. read
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With ESG increasingly in the spotlights, a growing number of companies have been caught out for greenwashing over the years. But greenwashing is not always deliberate. According to Chris Bennett, founder of sustainability services company Evora Global, a lack of clarity on sustainability performance due to poor data measurement can lead to accusations of greenwashing.

Why does sustainability have to be saved from the rising tide of greenwashing?

In May, investors pulled £304 million out of sustainable funds in the worst month of withdrawals on record for the ESG (environmental, social and governance) sector, with reports that greenwashing was undermining the credibility of ESG investments.

Yes, there’s a rising tide of greenwashing accusations, and this appears to be putting some investors off ethical investments. But, in my experience, many fail to understand the meaning and importance of ESG, and that this doesn't bode well for the future of our planet.

'Greenwashing often stems from poor ESG data measurement'

ESG has for too long been a buzzword and a communication gap around the subject has emerged.

For example, in our world of real estate investments (Evora Global provides consultancy services to the real estate sector) it’s really about helping companies to understand their risks due to climate change and taking steps to lower them.

Why must we save ESG?

ESG is an increasingly important subject and we can all understand that climate change poses a risk to assets and that we need to take action. Most people still don’t know what ESG really means. This includes many politicians and senior business leaders, and this has to change.

Climate change is real, so getting some good data on the E of ESG, ‘environmental’, is something any business with assets should be interested in. When ESG data is used effectively it can safeguard companies and assets and futureproof decisions.

What’s the value to companies of measuring ESG?

A company with a strong understanding of its climate risks can plan well for the future and also ensure it has a more positive impact on the world.

Investors are increasingly collecting data on sustainability and climate resilience indicators, to make better investment decisions. Also, businesses are now recognising the importance of ESG skills more widely in their hiring and training.

Further reading: ESG as important as profit to three-quarters of UK CEOs.

How can ‘greenwashing’ emerge from poor measurement?

It’s a shame ESG has been associated with greenwashing as ESG is a great commercial opportunity as well as benefit to society. But we do know that misuse of ESG data can be used to justify unacceptable and unsustainable practices often known as ‘greenwashing’. This can cause problems.

Greenwashing is bad for all industries and undermines trust and credibility. In several cases, greenwashing is a deliberate attempt to improve a person or company’s poor reputation in a world increasingly concerned with sustainability.

But that’s not the full story. In my view, greenwashing is often partly down to unreliable data leading to overstated sustainability credentials. There is a pervasive problem with poor measurement around the ‘E’ of ESG. A vagueness and lack of clarity around the ‘E’ contributes to sustainability credentials being overstated by some major corporations.

The issue of data measurement is something we’ve identified as part of our annual investor survey, which details responses from investors responsible for $3.3 trillion in assets, about one third of all the professionally managed real estate investments globally.

In our most recent survey, only 11% of these investors said that they were confident in their data quality, a significant drop from previous years. Meanwhile, their responses indicated that only 7% of real estate ESG data is automated and there remains a heavy reliance on third party data.

This is backed up by a recent survey by The Harris Poll. Their second Annual Sustainability Survey, of around 1,500 executives in 16 countries, showed that executives are eager for better systems to track their progress.

While six out of 10 executives admitted to overstating or inaccurately representing their sustainability activities, this was not the whole picture. The results also showed that 87% were looking to incorporate better measurement into their organisations to help make more accurate targets.

With such unreliable measurement of data, you can see how inaccurate or overly optimistic assumptions can mean that greenwashing occurs somewhat accidentally in the corporate environment.

With accurate measurement, we can help to solve the problem of greenwashing, make better business decisions and also build a better future for our planet.