Measuring Greenwashing: The Greenwashing Severity Index

Abstract

This research presents a comprehensive methodology for assessing greenwashing practices in corporate sustainability reports. Our approach combines advanced Natural Language Process- ing (NLP) techniques, innovative ESG Focus Scores, and a Greenwashing Severity Index (GSI) to evaluate the environmental, social, and governance (ESG) commitment of companies. Using a diverse dataset of 702 globally-listed companies, we analyze the prevalence of greenwashing across sectors, company sizes, and countries. Our findings reveal variations in greenwashing practices, with certain sectors exhibiting higher susceptibility to greenwashing, while smaller companies tend to engage in fewer deceptive practices. Portugal emerges as a country with potentially elevated greenwashing, particularly in the social dimension, while countries like the Czech Republic and Argentina demonstrate lower levels of greenwashing. Key implications highlight the importance of transparent ESG reporting, third-party verification, and regulatory frameworks in combating greenwashing. This research equips stakeholders with valuable insights to make informed decisions in the realm of sustainable finance, fostering trust and accountability in corporate sustainability practices.

Keywords: Greenwashing, Natural Language Processing, Transparency, ESG Disclosure, ESG, Sustainability