Beyond Greenwashing: Standardising ESG Reporting for Genuine Sustainability

Huge efforts towards sustainability, but no visible impact------------------------------------------------------------------------------------------------- Is it Greenwashing?

*Products claiming to be sustainable are found to be misleading. Hotels claiming to follow green behaviour are engaged in questionable practices.*

Introduction

All these instances make news for all the wrong reasons and are termed as greenwashing. Though the term was coined in the year 1986 by Jay Westerveld, it recently gave rise to what is known as ESG greenwashing. Exponential rise in efforts towards sustainable development at the micro as well as macro levels has given rise to various initiatives by global institutions and economies worldwide. The implementation of ‘Business Responsibility & Sustainability Reporting’ by SEBI for the top 1000 listed companies, for instance, is a welcome step towards the standardisation of sustainability reporting in emerging economy India.

A rise in interest towards sustainable practices by corporates worldwide has made Environmental, Social and Governance (ESG) metrics a key for assessing the overall health of an organisation. The reporting of ESG-related practices by firms in their financial reports can assist in providing reliable insights into sustainable practices. The rising interest in the ESG parameters is not only visible via the global reporting standards but is also reflected in the changed investment preferences that have given rise to contemporary financial instruments like green bonds and ESG ETFs, amongst others. The change in the scenario integrating finance with sustainability and its prominence in decision-making has aroused the interest of stakeholders in corporate ESG performance. It thus has a dual impact on the firms. On one side, it persuades them to focus on taking the necessary steps towards ESG attainment; it can also backfire if the efforts are not converted to verifiable outcomes. The rise in interest in the ESG rankings and the overall score can thus lead firms to greenwashing practices wherein firms either exaggerate their sustainability performance or try to inflate their ESG scores via selective disclosure or unverified claims. The reason behind the same can be the impact of ESG performance on the market reaction, equity premiums, and overall perception about the firm. While it can provide short-term benefits, the long-term impact can be detrimental to the corporate reputation. In the era of globalization and internationalization of the capital markets, it is all the more important that the sustainability performance across firms is measurable, comparable, and free from instances of unsupported and/or unverified claims. It is thus imperative on the part of the regulators to ensure transparency, standardization, and strict enforcement of data that can assist in mitigating instances of corporate ESG greenwashing.

Various factors have been highlighted in the literature that can either persuade or impede companies from engaging in ESG greenwashing. Financial distress, for instance, is an important factor that leads firms to greenwash, while green subsidies, by easing financial constraints, help in mitigating the latter. In addition, factors like government data openness, social capital, third-party ESG ratings, amongst others, also assist in reducing corporate greenwashing. While the same factors can operate differently across economies due to institutional, developmental, and structural variations, the fundamental principles of transparency and accountability remain universally effective in combating ESG greenwashing. Identification of such factors thus will not only assist in relevant policy making but will also ensure in providing robust environment for organisations to take serious steps towards sustainability.

While studies have identified multiple factors mitigating greenwashing, ensuring their consistent application across diverse economies will enhance transparency, accountability, and genuine sustainability progress. A major ESG reporting challenge is methodological divergence among credit rating agencies, research firms, and data providers that provide ESG scores. The reliability and the methodology need to be transparent, consistent, and comparable across firms and agencies. In addition to highlighting the weighting schemes, adjustment for industry risks, along with other differentiating factors, is essential to make scoring understandable. To ensure the reliability of the same, it is also imperative that the scoring agencies are duly registered, as it will not only enhance credibility but also promote trust. Also, to make it accessible to the general public, such scores must be available freely so that stakeholders can make informed decisions, along with being explained in a simple language to appeal to the masses. This is also important in emerging markets where financial literacy continues to grow, requiring ESG metrics to complement traditional financial analysis for informed investment decisions.

Genuine efforts towards the promotion of ESG require sustained commitment beyond compliance, integrating verifiable metrics into core business strategies and fostering a culture of accountability at all levels. It is thus imperative on the part of the corporates to move beyond symbolic disclosure of sustainable practices to make significant transformations. For instance, decarbonising supply chains, training the workforce towards green transition, and making investments in biodiversity-positive initiatives, along with other factors, can assist in the promotion of holistic ESG efforts across firms. There is also a need for regulators, rating agencies, and investors to collaborate and create an ecosystem where authenticity drives value creation, not deception. The viewpoint in this article thus advocates for global regulatory convergence around standardised frameworks that combine methodological transparency, third-party assurance, and stakeholder accessibility, which is necessary to transform ESG from greenwashing vulnerability to a genuine sustainability catalyst.

References

• Kuai, Y., & Guo, M. (2026). Can Social Capital Combat Corporate Greenwashing? Evidence from China. Finance Research Letters, 109500, https://doi.org/10.1016/j.frl.2026.109500

• Li, R., Che, C., & Huang, T. (2026). Financial distress and corporate ESG greenwashing. International Review of Economics & Finance, 106, 104938, https://doi.org/10.1016/j.iref.2026.104938

• Qiang, G., & Ruan, J. (2025). Can government public data openness help enterprises achieve sustainable development? Empirical evidence based on corporate ESG greenwashing. Finance Research Letters, 108875, https://doi.org/10.1016/j.frl.2025.108875

• Zhang, H., Lai, J., & Guo, Z. (2025). When greenwashing meets ESG: Exploring the role of third-party ESG ratings in corporate greenwashing behavior. Journal of Business Research, 200, 115611, https://doi.org/10.1016/j.jbusres.2025.115611

• Zhong, M., Niu, Z., Zhu, Y., & Li, R. (2025). Government green subsidies and corporate ESG greenwashing: Evidence from China. Economic Analysis and Policy, https://doi.org/10.1016/j.eap.2025.10.030

• https://www.sebi.gov.in/sebi_data/commondocs/may-2021/Business%20responsibility%20and%20sustainability%20reporting%20by%20listed%20entitiesAnnexure2_p.PDF