Combating corporate greenwashing to promote meaningful sustainable practices
Researchers at Modern College of Business and Science shine a light on greenwashing by corporations and the factors that can mitigate it
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Many companies make strong claims about their commitment to sustainability, but not all translate those sentiments into action. The concept of greenwashing refers to a common practice where corporations present themselves and their products as more sustainable than they are. However, greenwashing goes beyond clever marketing.
Dharmendra Singh, associate professor of business and economics at Modern College of Business and Science in Oman, wants to tackle the issue of greenwashing by examining it as a matter of corporate practices relating to environmental, social and governance (ESG) standards. His research explores a theoretical framework for the occurrence of greenwashing and ways to curb it.
“Being a professor of finance, my focus was on ESG greenwashing,” says Singh. He says there are two sides to this problem. One relates to whether companies are accurately documenting the internal and external mechanisms around their ESG behaviours. “The integration of sustainability practices into business operations can only be monitored and fulfilled if the companies give true ESG disclosures in their annual reports,” he says. Transparency is key to enabling investors to make more informed decisions. The second concern is whether stakeholders understand this information.
Singh’s research focuses on the factors that deter companies from greenwashing. “The most important factor for mitigating this is the adoption of technologies such as AI and machine learning and broader digital transformation in companies,” he says. These improve the quality of ESG disclosures by detecting inconsistencies and using data that can be easily validated.
Strong internal and external monitoring mechanisms also help to ensure that companies provide genuine records of their sustainability efforts without exaggeration. Analyst evaluations of companies and increased environmental awareness among the public are other factors that may curb greenwashing and encourage real sustainability efforts. The shift towards green finance also has the potential to reduce greenwashing.
Research suggests that a lack of diversity in the boardroom can exacerbate ESG greenwashing. For example, boards that have independent directors are more likely to critically evaluate decisions regarding ESG greenwashing. Similarly, those with better gender diversity are linked to increased transparency and a more positive environmental impact.
Tackling ESG greenwashing may not be easy. “There are various challenges, and they give room and scope for greenwashing,” he says. For instance, there is no widely recognised definition of ESG greenwashing, nor a global regulatory framework for ESG compliance or metrics that might support comparative evaluation.
Many companies operate across multiple countries, each with its own regulations and standards, adding complexity to the issue of corporate governance. Transparency is key, says Singh. He hopes there will be a standardised global framework to provide a unified ESG rulebook for all.