ESG & Greenwashing

26 April 2023 


Environmental, Social and Governance (ESG) reporting is a crucial part of any business operation. There are a huge number of benefits to having a properly planned out ESG strategy in place – from attracting conscious consumers and attracting and retaining employees to appealing to investors while complying with rules and regulations; the benefits of robust ESG reporting are obvious. 

ESG investing continues to grow in popularity, and with the amount of investors considering ESG issues as part of their investment approach growing from 84% to 89% between 2021 and 2022, this looks likely to continue.  

The trend is similar in consumer behaviour too – according to a study by PwC, 76% of consumers say they will stop buying from companies that treat the environment, employees or the community in which they operate poorly.  

But as ESG’s influence over investment opportunities and bottom line growth continue to build, greenwashing is increasingly becoming a more commonplace problem.  

What is greenwashing? 

The Oxford English Dictionary defines Greenwashing as: 

“The creation or propagation of an unfounded or misleading environmentalist image”.   

Essentially, this can apply to organisations looking to create an ‘illusion’ that suggests they’re behaving in an environmentally-conscious way/ethical and sustainable manner, when really there’s no evidence or traceability to support that claim.  

As societal attitudes towards the environment have changed, and with investors and consumers looking to back sustainable companies, many organisations are keen to get on board with sustainability reporting  

But a number of brands have increasingly faced scrutiny over their environmental advertising claims. 

In 2022, a large drinks retailer released a series of adverts focused on how they were helping clear up the environment. Critics were quick to point out the adverts were misleading, as the brand is owned by one of the world’s largest plastic polluters and uses single-use plastic in its products (the adverts were eventually banned by regulators).  

In the same year, a national airline lost its case and was fined over €100m for fixing airfreight services, fuel and security surcharges almost two decades ago. And in 2021 Changing Markets Foundation released a report looking at sustainability claims made in the high street fashion industry. They found 60% of sustainability claims (96% for one retailer) in this sector were wrong or misleading.  

Impacts of greenwashing  

Greenwashing in ESG terms can be applied to any organisation looking to exploit the benefits of ESG by appearing to be doing the right thing. And the damage that can be caused is not something to be taken lightly: 

Damage to reputation 

Unquestionably, companies found to be greenwashing will suffer from a damaged reputation,  and consumers, NGO’s investors and employees are now much wiser in identifying or researching into sustainable claims which lack identifiable or traceable roots. no different. If found guilty of greenwashing the damage to a brand’s reputation can have a huge impact on a company’s bottom line and growth.  

Rules & regulations 

There is the risk of fines and legal proceedings for companies found guilty of greenwashing.  

Wasted time and money 

Many organisations guilty of greenwashing have not undertaken this with a view to deliberately misleading. The issues are more related to the problem of not fully identifying or tracing their ESG impact due to perceived complications of capturing data and monitoring throughout the entire company network of locations and suppliers. Some firms also find the process of actualized data and tracking complex, and can opt for simplified processes which fail to capture all the key material ESG requirements of the company.  The result in many of these examples are that the very real cost of wasted marketing time, brand reputational damage and loss of brand confidence far outweigh the cost of implementing a robust ESG strategy.  

Environmental consequences 

There are powerful repurcussions When a company says it’s sustainable. Consumers will assume that they themselves are acting in a sustainable and environmentally-friendly way when they buy products or services from them. Should it turn out that environmental claims are shown to be false it’s not just the organisation’s processes that are harming the environment, it’s also the consumer inadvertently contributing to environmentally damaging practices, and this can quickly lead to a loss of brand support. 

What should you be doing? 

The above examples are extreme versions of greenwashing. For most organisations, however, greenwashing is not a conscious choice. There is a big difference between deliberate greenwashing and falsehood and unintentional greenwashing.  

Businesses without huge departments and resources looking after ESG can legitimately make mistakes. Honest mistakes can come from not understanding the full impact of business decisions across the entire supply chain and decisions being made on old, outdated or mis-sold information and data.  

Streamline your ESG data 

The potential negative impacts of being found guilty of greenwashing are still very real, even for organisations who have done so by mistake. 

The best thing you can do to avoid the potential pitfalls of greenwashing is to invest in an ESG strategy, understand your data on a regular basis (not just yearly) and take action.  

Having awareness of your ESG performance allows you to assess all your business activities and data and use that to inform long-term decision making. By using an intuitive platform like Sustainion, you can track and monitor your performance in key areas and adjust accordingly.  

Whether you’re looking to save money, introduce more environmentally-friendly practices or get to grips with the performance of your supply chain, data is critical to better visibility.  

Having clear data at your fingertips can not only help you streamline your business, and attract investors, consumers and employees; it can also help you avoid greenwashing and feel confident the claims you’re making about your business are backed by real evidence. 

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