Greenwashing is used by companies to make their businesses appear more environmentally friendly than they actually are, but this damages the environment and our society. Until now, there has been a lack of uniform standards by which to measure the extent of greenwashing in companies. Prof. Dr Sebastian Utz from the University of Augsburg and Prof. Dr Gregor Dorfleitner from the University of Regensberg, both members of the Centre for Climate Resilience, want to change this with their conceptual framework for a greenwashing indicator. It provides an indication of where a company stands in relation to greenwashing. Their article has recently been published in the journal “Review of Managerial Science.”

Green appearances can be deceiving

The indicator developed by Utz and Dorfleitner can be used to calculate the difference between what a company claims about its green credentials and what they actually are. For this, various information on a company’s green activities is used. On the one hand, “soft” data, which is difficult to clearly measure, from the areas of Environmental, Social and Governance (ESG) is used, including textual self-promotion materials and other activities that make the business appear green. A company’s sustainability report belongs to this area of analysis, as does its commitment to voluntary initiatives. This data is then contrasted with measurable “hard” ESG data, which actually measures how green a company is, based on such things as the amount of CO2 emissions it releases. The result is then aggregated with a value of between 0 and 1: the higher the value, the higher the probability that greenwashing is occurring in the company, independent of whether this is intentional or unintentional.

“Our indicator should make it possible to systematically identify greenwashing risk on a broad basis,” says Utz. This is because the calculation is based on data that can be systematically collected for many companies, or if it is not available, it can be estimated using a corporate misconduct factor.

Greenwashing is not only used by companies

“Until now, many cases of greenwashing have probably gone undetected because it is very time-consuming to investigate allegations at the company level,” explains Utz. The greenwashing indicator will make the green activities of companies comparable. “It is therefore of interest to investors, regulatory authorities, and consumers,” say the researchers. Risks that result from greenwashing activities can be detected earlier and included in decision processes.

“The indicator also contributes to better environmental protection,” says Dorfleitner. It can be used to find out what the drivers of greenwashing were in the past to predict future greenwashing, but also to record improvements over time.

Both researchers work together at the Centre for Climate Resilience in Augsburg: Utz as a full member and Dorfleitner as an associate member. Their research on the greenwashing indicator is funded by the Stiftung Mercator in the context of the project “Machbarkeitsstudie Greenwashing Scores.”

Original publication:

Gregor Dorfleitner, Sebastian Utz: Green, green, it’s green they say: a conceptual framework for measuring greenwashing on firm level, in: Review of Managerial Science, https://doi.org/10.1007/s11846-023-00718-w (Open Access)