Nearly half of investors believe that the annual reports they review are riddled with greenwashing.
According to new research, which questioned 227 investors and analysts round the world, 87% believe there is “at least some” greenwashing in annual reports. More alarmingly, 46% believe that unsupported claims about corporate sustainability performance occur to a “large” or “very large extent”.
The findings come in PwC’s annual investor survey, which also reveals that a reduction of greenhouse gases and climate change are a top-five priority for investors. More than a quarter (27%) of those managing funds are either willing to take a hit on their returns from companies working on their environmental or societal performance. Another 28% are “neutral”, indicating a high degree of tolerance.
While greenwashing has also always been a concern among businesses and investors alike, the past year has seen a growing urgency to root it out.
Capital threat
There have been increasingly shrill warnings that greenwashing is risking investors’ capital, while research indicates that many corporate commitments to net zero carbon emissions may be hot air.
The PwC report suggests that investors are well aware of greenwashing behaviour. PwC’s global reporting leader, Nadja Picard, says the greenwashing revelations should sound an alarm that is “troubling”, given the growing importance of sustainability information to investor decision-making.
“There is a need for companies to improve their data, systems and governance, and for regulators to continue the move towards globally aligned and interoperable reporting and assurance standards,” she says.
Investors have other interests than the protection of the planet and biodiversity for their own sake. A significant number, 64%, say ESG will help investment returns, while 68% say it will “protect” returns. A whopping 82% say they are being badgered by clients to up the pressure on climate issues.
Regulators are acting to set the foundation for improved climate reporting. Disclosures according to Taskforce for Climate-related Financial Disclosures (TCFD) rules are now mandatory for the UK’s largest companies, while the EU is working on a brand new set of reporting rules through the Corporate Sustainability Disclosure Directive.
Worldwide standard
Elsewhere, a project led by the International Sustainability Standards Board is rushing to put together new reporting standards that will form a global baseline for ESG disclosures. Their first drafts are aimed at climate risk reporting and are based largely on TCFD. However, use of these new standards will rely on the willingness of national governments and regulators to adopt them. When he was chancellor, the UK’s prime minister Rishi Sunak pledged the UK to adoption during the COP26 Summit in Glasgow last year.
Other regulators are turning their sights on greenwashing. The Financial Conduct Authority has launched a crackdown on the use of terms such as “ESG”, “green”, or “sustainable” in the literature for financial products.
There have been warnings from high-profile figures, too. Emma Howard Boyd, chair of the UK Environment Agency and interim chair of the Green Finance Institute, warned during the summer of greenwashing dangers.
“If we fail to identify and address greenwashing, we allow ourselves false confidence that we are already addressing the causes and treating the symptoms of the climate crisis,” she said.
Elsewhere, there is confirmation that the climate message may be going awry. Researchers at the University of Maastricht have concluded that many companies exaggerate their ESG performance in order to rise higher on ESG ratings.
PwC’s results suggest investors have rumbled the corporate greenwashing gig. The unanswered question is the extent to which fund managers priced in the deception or whether they really want to root it out. Either way, the survey suggests corporate statements are not currently fooling the people who control the capital allocations. And that has to be a concern for boards.