Environmental, Social, and Governance (ESG) Factors and Green Productivity: The Impacts of Greenwashing and Competence Greenwashing on Sustainable Finance and ESG Investing

Abstract

The rise of sustainable finance, ESG investment, and sustainability reporting, has gradually led to a growing disconnect among many financial-sector and corporate stakeholders, which can be observed between their positive sustainability performance claims and the organizational resources and capacities dedicated to assuring proper ESG integration and sustainability impact MRV.

These discrepancies can easily result in greenwashing or carbonwashing, which are the practices of marketing products or services as “green”, “sustainable”, "carbon neutral", "net zero" or "nature positive" when in fact they do not meet basic environmental, climate, or sustainability standards of verifiability or credibility. Competence greenwashing is the professional ESG skills-related equivalent that relates to overstated claims of environmental competence or non-financial sustainability-related expertise in absence of material or credible educational or professional track records.

However, greenwashing and its subvariants like “carbonwashing” or “competence greenwashing” do not occur in a contextual vacuum but are strongly linked to the increasing appeal of sustainable finance, ESG investing, and the strong green growth they are supporting. Therefore, this paper will first illustrate recent green growth trends in the areas of sustainable finance and ESG investing before exploring how greenwashing and subject matter expertise-related competence greenwashing have been increasing alongside those trends.

Keywords: Greenwashing, Carbonwashing, Competence Greenwashing, Sustainable Finance, ESG, Sustainability Reporting, Sustainability

JEL Classification: C80, G3, G24, Q01, Q2, Q3, Q4, Q50, Q54, Q55, Q56