Introduction
In today’s rapidly evolving sustainability landscape, transparency is more important than ever. Even though this blog is dedicated to sustainability—a field that thrives on good intentions and innovative solutions for a better world—we must confront an age-old issue: dishonesty. Companies across industries are working hard to align with growing environmental and social expectations, but sometimes the path to sustainability is complex. With increasing pressure to meet ESG (Environmental, Social, and Governance) goals, some businesses may inadvertently fall into the trap of "greenwashing"—where sustainability claims don't quite match the reality.
Not too long ago, these reports were often dismissed as mere coffee-table books—full of glossy pictures, polished editing, and little substance beyond self-promotion. This was largely true until the advent of reporting frameworks and regulations, which aimed to ensure that these documents genuinely reflected an organization's ESG performance.
In this blog, we’ll explore how greenwashing can occur, why it’s important to address, and how companies can ensure that their sustainability reports and communications accurately reflect their true progress.
What exactly is greenwashing?
The concept is so significant that the European Supervisory Authorities (ESAs)—including the European Bank Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA), and European Securities and Markets Authority (ESMA)—issued a definition in May 2023:
*Greenwashing is ‘a practice where sustainability-related statements, declarations, actions, or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product, or financial service. This practice may be misleading to consumers, investors, or other market participants.'*
Unfortunately, this is not a new phenomenon. The U.S. Securities Act of 1933 introduced the concept of "truth in securities" with two primary objectives:
• To ensure that investors receive essential financial and other significant information regarding securities offered for public sale.
• To prohibit deceit, misrepresentation, and other forms of fraud in the sale of securities.
This laid the groundwork for a crucial concept in sustainability: materiality. When we link these two concepts, we arrive at a concise definition of greenwashing: disguising, altering, or misrepresenting material information—in other words, lying about what truly matters.
Shining a Light on Gaps
In a world accustomed to fast-moving scandals and finger-pointing, it’s tempting to seek out those responsible for greenwashing and put them on trial in the court of public opinion. However, before we jump to conclusions, it’s important to understand that misleading sustainability claims can be spread intentionally or unintentionally when information about an entity, product, or service is presented.
The Many Faces of Greenwashing
Greenwashing can take various forms, including cherry-picking data, omission, ambiguity, empty claims (including exaggeration) inconsistencies and the misleading use of ESG terminology. These tactics can distort all key aspects of a product's, service's, or entity's sustainability profile, such as:
• ESG governance and resources
• ESG strategy, policies, and credentials
• ESG performance metrics and targets
• Sustainability impact
• Forward-looking information and pledges about future ESG performance
• Engagement between funds or managers and investee companies
• The degree to which advice offered to retail investors considers sustainability
• Advisors may fail to provide suitable, personalized advice when presenting the sustainability features of products.
Another area where greenwashing can occur is in benchmarking. While comparing your practices and performance to the best in class can demonstrate transparency, it’s essential to ensure that the comparison is fair. Cherry-picking benchmark companies, omitting material information, or failing to explain the methodologies used can all lead to greenwashing.
Where Does Greenwashing Occur?
According to ESMA, "while regulatory documents appear less exposed to greenwashing risks than marketing materials, labels, and voluntary reporting, they should not be overlooked." Since the introduction of the Corporate Sustainability Reporting Directive (CSRD), producing misleading information has become more challenging—at least in the EU—but it’s still not impossible. Sustainability-related references can appear in, but are not limited to, statements, strategies, targets, policies, information, and even images. This brings us to a more subtle form of greenwashing: the manipulation of visual elements such as colors, fonts, sizes, pictures, and footnotes.
Why Do Companies Face Greenwashing Risks?
The list of reasons for falling into this trap is long. Beyond the intent to commit fraud, some of the primary causes of unintentional greenwashing include:
• Lack of understanding, knowledge, and skills
• Absence of commitment to sustainability
• Failure to regard sustainability as valuable or important
• Excessive enthusiasm, human error or inconsistencies
• Insufficient resources
• Attempts to cover up past unsustainable performance
• A mundane desire to capitalize on a market trend
How to avoid Greenwashing (and how msg global solutions can help)
First and foremost, we must treat greenwashing as a risk. It can be categorized as a transition risk or, more wisely, considered a managerial risk.
Not convinced? Consider this: when companies fail to provide quality sustainability information, the financial sector often assumes the worst. Greenwashing not only erodes trust in an organization, but it also damages the market and society.
At msg global solutions, we help companies ensure that their sustainability claims are both transparent and backed by solid evidence. So, how our team of experts can help you keep greenwashing at bay? With these comprehensive solutions and services:
Sustainability Assessment: Our expertise will guide you through the complexities of sustainability matters, helping you understand where you stand in terms of sustainable development.
Materiality Assessments: Our specialists conduct thorough assessments to identify key ESG issues impacting your business and stakeholders.
Data Management: We provide advanced solutions to streamline the collection, analysis, and reporting of sustainability data.
AI-Powered Analysis: msg Greenwashing Detector provides a complete analysis with the help of AI of the nonfinancial reports, other documentation (path to net zero reports) and evaluates the feasibility of the plan and the risks on those KPI’s. The screening can be conducted on structured and non-structured data from any kind of virtual sources (websites, social media, news and others)
Reporting Structure: We help you determine what to say, how to say it, and where to say it. These three questions are critical for ensuring that your sustainability claims are transparent and accountable.
Conclusion
Greenwashing whether intentional or unintentional, can undermine trust and have long-term consequences for companies. By approaching sustainability reporting with care and transparency, businesses can build stronger relationships with stakeholders and ensure compliance with evolving standards Just as you take precautions with your supply chain when choosing suppliers, apply the same level of scrutiny to your sustainability information.
At msg global solutions, we are committed to helping you navigate the complexities of sustainability reporting and avoid the pitfalls of greenwashing. Our comprehensive solutions enable you to present a clear, accurate view of your sustainability efforts, backed by credible data. Our msg Greenwashing Detector specifically helps identify risks by flagging inconsistencies between your sustainability claims and real data, enabling you to make greener decisions with confidence. With these comprehensive solutions, we will help you ensure that your sustainability journey is built on a foundation of trust and transparency.
