Greenwashing is a data problem

Since “greenwashing” entered the lexicon in the 1960s, the world has changed. The climate crisis has become one of the defining issues of our era, and governments, multinational corporations, right down to small businesses are under increasing scrutiny for the way their practices affect the environment.

ESG, short for “Environmental, Social, and Governance”, has arisen as the dominant framework for corporations to quantify this impact. Today, these businesses are under pressure from investors and, increasingly, regulators to green their operations. Already, more than 177 of the world’s major corporations have pledged to “set scientific, verifiable (greenhouse gas) emission reduction targets” to meet by 2050. These companies have a combined market capitalization of over $2.8 trillion, representing over 5.8 million employees across 36 countries and 36 sectors. Their combined operations produce the equivalent of France’s total greenhouse gas emissions.

ESG-rated funds now comprise a huge — and still-growing — segment of the investment landscape, trillions of dollars worth. This is not only because investors and consumers are becoming more conscientious, but because these funds and companies tend to perform better. According to a 2015 meta-analysis, 60% of the more than 2,000 academic studies published since the 1970s on the link between financial performance and ESG show a positive correlation.

The issue is: it’s almost impossible to measure whether these companies are delivering on their promises.

The Institute for Sustainable Finance recently surveyed 85 professionals including asset managers, lenders, and researchers from both the public and private sector. Just 6% said they were “very satisfied” with the data they were able to get on investments labelled “green.” Forty-five percent reported being “somewhat satisfied,” 44% “not very satisfied” and 5% “totally dissatisfied.”

There are a few reasons why. ESG initiatives are often massive. They don’t fall into neat categories and they deal with a huge range of unwieldly variables. ESG initiatives in manufacturing bear little resemblance to airlines, for instance, and even within this umbrella category, environmental initiatives (to cut GHG emissions, mitigate water pollution, etc.) don’t operate under the same metrics or aims as governance initiatives (increase diversity at the board level, improve employee working conditions, etc.). As a result, clear, measurable standards have not been widely established, and without a solid framework, subsequent reporting is often vague or unreliable, built on models and assumption without strong — or in many cases, any — data collection.

When people hear “greenwashing”, they think of companies burying or intentionally misrepresenting data. That does happen, but the reason the practice is widespread is because most companies simply don’t have enough data to know what’s going on. And under mounting pressure to “go green” in a business environment where ESG standards are self-defined and still unenforceable, it’s unsurprising nearly 60% of businesses still make “green” claims for which they have little-to-no evidence.

This may be changing, though. In the E.U., where more than 67% of ETFs introduced since 2020 factor in sustainability, almost 25% of funds claiming to promote sustainability were stripped of their label by market researchers like Morningstar. New rules are being introduced to compel ESG disclosures and set standards for data reporting to qualify for these labels.

We at Ioticiti are working with private enterprises and government to set a new standard for data collection efforts that will help companies accomplish what they legitimately aspire to do. Our industrial IoT solutions for water and air quality offer reliable, automated monitoring of nearly a dozen key parameters from contaminants, to greenhouse gas emissions, to salinity, temperature, and pH. Our proprietary software and private network ensure the data is transmitted securely and organized according to your needs, from up-to-the-minute data to long-term trends for annual reports.

It’s the first step in a long road to help more corporations operate sustainably. Contact us to learn more about our solutions and whether we can help you.