Green, greener, greenwashing – how new methodologies can assess fund greenwashing risk exposure

How many posts, articles, and sponsored content did you come across where companies talked about their positive sustainable behaviour?  
 
At least on my LinkedIn feed, there seem to be quite a lot. 

Now, imagine searching for one of these companies on Google News and the first article you find highlights their pollution, government bribes, or mistreatment of employees in their supply chain. While this is just a hypothetical example, it wouldn’t be difficult to find a real-life case. The implication is clear: you’ve just identified a strong indicator that this company is at risk of greenwashing. 

Greenwashing is defined by its communication and action dimensions. When a company communicates positively about its future while being primarily driven by controversies today, it clearly misleads its image. In short, it’s greenwashing.

ESG data providers have long been collecting news articles about companies to derive their ESG-related risk ratings and assess their exposure to controversies. This methodology is widely used to identify corporate controversies. 

With advancing technology, these news articles can now not only explain controversies but also assess the sentiment expressed in the articles. This means determining whether an article portrays a company in a positive or negative light. 
 
Covalence, a Swiss-based ESG data provider founded in 2001, utilizes this sentiment data to assess a company’s greenwashing risk. Their methodology aligns with the logic we presented earlier. More…

Source: FE Fundinfo / Illuminem