Unveiling Green Facades: Detecting Greenwashing Tendencies in Corporate Sustainability Reports

Greenwashing poses a significant challenge to the fight against climate change by undermining trust in corporate sustainability claims. This study introduces the Greenwashing Tendency Score (GTS), an automated method designed to detect greenwashing tendencies in corporate sustainability reports. By leveraging sentiment and alignment analysis techniques in conjunction with ESG ratings, the GTS quantifies discrepancies between reported and actual sustainability performance. We applied our methodology to 36 DAX40 companies over the years 2020 to 2022. Our key findings reveal substantial variations in greenwashing tendencies among these companies, emphasizing the need for more transparent and reliable sustainability reporting. The GTS emerged as a scalable, reproducible, and objective tool that can aid investors, regulators, NGOs, and companies in identifying greenwashing practices. This research not only contributes to the sustainable finance literature but also provides actionable insights for stakeholders committed to fostering accountability and integrity in corporate sustainability communications.