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Article • 07/05/2024

Greenwashing to Greenhushing: Why ESG Remains a Key Reputation & Regulatory Risk

The rise of the Environment, Social, and Governance (ESG) movement as a pillar of corporate social responsibility has become synonymous with corporate reputation. 

With purportedly good intentions or perhaps simply due to increased pressure, many organizations have included ESG goals in their strategic plans in recent years.

As our Head of Strategic Solutions, Daniel Gaynor, advised corporate teams, “If you want to be renowned on ESG, it’s not about solar, carbon credits, direct air capture, or any individual technology–it’s about the clarity of your comprehensive plan.”
However, there’s been a precise lack of clarity, coupled with some organizations’ bold or unsubstantiated claims about their progress and commitment to green goals, known as greenwashing.

Regulators have since zeroed in on discrepancies and started delivering fines—with costs up to $30B—causing companies to brace for a reckoning.

We used our external intelligence platform powered by AI for insights into the perceived and known risks associated with greenwashing.

Key takeaways:

  • ‘Greenhushing’ is a reputational risk factor, but the ‘E’ is still king: Interest in ESG commitments fell by almost 30% in the past year, with governance experiencing the sharpest decline. Despite that, environmental issues dominate ESG discussions, garnering double the attention of other components and the most favorable reception.
  • Companies face regulatory risk for overpromising and underdelivering on ESG targets. The topic of greenwashing surged by over 50%, and negative public scrutiny emerged as a significant reputational risk.
  • Across industries, greenwashing claims can decrease sentiment by over 250%: Automotive, energy, and tech companies are the most affected, with sentiment dropping by approx. 330%, 230% and 680%, respectively.
  • Legislation and heightened regulatory burdens stand out as primary risks: Regulators have focused on discrepancies and fined companies, with costs up to $30B. Allegations of greenwashing and the fear of fines and reputation damage are causing companies to stay silent on their ESG goals, known as greenhushing, making investors doubt the value of green investing.

Finding 1: Interest in ESG has decreased nearly 30% in the past 12 months

News outlets have been proclaiming the demise of ESG for some time now, and rightfully so. “The number of S&P 500 companies citing ‘ESG’ on earnings calls has declined (quarter over quarter) in four of the past five quarters,” according to a Fact Set study.

Interest in ESG dropped by 28.87% between the second quarter of 2023 and the end of the first quarter of 2024. This drop in mentions could be due to ‘greenhushing’: brands who quiet their efforts towards sustainability, making them less likely to be accused of greenwashing.

The most significant decrease was observed in governance issues, which dropped by 36.78%. This was followed by environmental issues, which dipped by 29.14%, and social issues, which fell by 27.90%.

The automotive, energy, and technology sectors dominate discussions on environmentally friendly progress, comprising nearly 82% of conversations. In some ways, the grass is a bit greener for these industries—they reap significant benefits from their green initiatives, with positive coverage accounting for 77%, 88%, and 75%, respectively.

Environmental ESG themes attracted over two times the attention compared to social and corporate governance issues. Out of all ESG categories, efforts to decrease businesses’ environmental footprint attract the greatest share of positive attention.

ESG – Chart 1 by Signal AI

Point 2: Mentions of greenwashing increased by over 50% in Q1 2024

While there was a 30% decrease in interest for ESG, greenwashing is still increasingly being discussed. Even as companies grow quieter about ESG, the ghosts of past claims are now returning to haunt them.

Mentions of greenwashing surged by 54% from the beginning to the end of the first quarter of 2024, signaling a renewed interest in the subject (see Fig. 2).

The increased prominence of greenwashing is an unfortunate consequence of one of the ESG movement’s cardinal sins: the lack of a consistent set of metrics that can be used to evaluate progress toward ESG goals.

Take recent headlines: the EU is now investigating 20 different airlines for “several types of potentially misleading green claims.” 

Unclear definitions of terms like “climate positive” or “carbon neutral” have left many companies scrambling to provide measurable performance indicators to support the use of these labels in their products or services, especially when regulators come knocking.

According to EcoBusiness reporting, “there were more cases of brands getting called out for greenwashing in 2023 than the previous year when 18 cases were highlighted – up from 11 in 2021 and eight in 2020.” This will likely continue well into 2024 and in the years ahead.

ESG – Chart 2: Greenwashing Mentions by Signal AI

Point 3: Across industries, greenwashing claims can decrease sentiment by over 250%

Companies face significant reputational damage as they bear the brunt of the backlash from greenwashing allegations. These accusations lead to a staggering 252.30% reduction in net sentiment across industries on average. Automotive, energy, and tech companies are the most affected, with sentiment dropping by approx. 330%, 230% and 680%, respectively.

Although difficult to quantify, that decrease in sentiment has real consequences for businesses, especially consumer goods companies. For example, as reported by the BBC, Coca-Cola, Danone, and Nestle were accused of misleading claims for “100% recycled” bottles.

ESG – Chart 3: Greenwashing by Industry by Signal AI

Point 4: Reputational risk is compounded by the increased risk of litigation

Having grown by 207.37% from Q3 2023 to Q1 2024, the media reports of litigation associated with greenwashing claims highlight the significant risk companies face when going public with claims.  While regulators seem to be paying closer attention than ever, consumer activism decreased by 33.68%, indicating a weakening public interest in the topic.
What are the costs? An analysis by CleanHub reported the most recent and largest fines for greenwashing. This includes Volkswagen’s $30B fine in 2017, the largest fine for greenwashing to date and the largest ever for automakers after they rigged diesel engines to pass U.S. emissions tests. Other large fines include Toyota for $180M for violating the Clean Air Act and Deutsche Bank’s investment firm DWS’s $25M charge by the U.S. Securities Exchange Commission (SEC) for false statements about its investments.

ESG – Chart 4: Increase in Regulatory Risk Mentions by Signal AI

What is causing the increased regulatory risk?

  • Changes in the regulatory landscape:  Enhanced ESG-related regulations coupled with stricter enforcement have expanded avenues for potential litigants to hold organizations accountable. Consumer protection and advertising laws prohibiting false or misleading environmental claims add to the legal framework.
  • Increased funding: The availability of litigation funding and support from philanthropic foundations empowers not-for-profit organizations and other litigants, enhancing their financial resources to pursue legal action.
  • Diverse stakeholders: ESG-related matters attract a broader range of stakeholders than traditional litigation, widening the pool of potential litigants. This inclusivity incorporates diverse voices in legal actions concerning environmental and social concerns. Some litigants prioritize generating negative publicity over winning cases outright. Their strategic aim may deter consumers and investors from engaging with organizations accused of ‘greenwashing,’ irrespective of the litigation outcome.

The Takeaway: How Companies Should Approach ESG

ESG is no longer about looking good but about doing right. It’s not just a verb or a noun. It’s a mindset for investing that helps identify what matters most to a company’s long-term success.

The potential consequences—ranging from damage to reputation to legal ramifications—underscore companies’ need to be vigilant and prepared.

Signal AI’s risk intelligence solutions harness state-of-the-art AI technology to deliver swift and insightful external intelligence. We can equip C-suite leaders with the tools to proactively anticipate, monitor, mitigate, and prioritize enterprise risks, safeguarding business performance.

Research Methodology

Using our AI-powered solutions and looking at the top players across various industries in our Signal AI 500 ranking, we conducted an in-depth analysis of the risk landscape across premium content sources.

Auto companies: Nissan Motor Company, BorgWarner, Volkswagen, Volvo, Mercedes-Benz, BMW, Stellantis, Honda, Toyota, Hyundai.

Energy companies: Consolidated Edison, SunPower, First Solar, American Electric Power, Dominion Energy, Enel, Sempra Energy, Iberdrola, Southern Company, Duke Energy.

Fashion companies: Inditex, ASICS, Under Armour, Uniqlo, Authentic Brands Group, Nike, Decathlon, H&M, Puma, Patagonia.

FMCG companies: The J.M. Smucker Company, Constellation Brands, Estee Lauder, Unilever, Pepsico, Kellogg Company, The Coca-Cola Company, Henkel, Procter & Gamble, and L’Oreal.

Finance companies: Citigroup, Fiserv, Stripe, Bank of America, Morgan Stanley, Bain Capital, Experia, Visa, MSCI, Mastercard.

Professional services: WPP plc, Publicis Groupe, Bain & Company, KPMG, Omnicom, Cognizant, Accenture, Ernst & Young, Deloitte, Boston Consulting Group.
Tech companies: IBM, HP, Apple, Cisco, Oracle, Salesforce.com, SAP, ServiceNow, Google, Microsoft.

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