AI May Give ESG the Credibility It Needs
- By CDOTrends editors
- July 25, 2022
Greenwashing has become pervasive in the business world. To appear more sustainable, companies are increasingly engaging in what's known as "greenwashing" - making misleading or unsubstantiated claims about the environmental benefits of their products or practices.
This is where machine learning (ML) and artificial intelligence (AI) come in. Algorithms can help sort through mountains of data to find the needles in the haystack — the companies making a difference.
Hong Kong-based green data startup MioTech is also looking at how companies can leverage ML and AI to make sense of their environmental, social, and governance (ESG) reporting. In a report on Eco Business, Jason Tu, chief executive and founder of MioTech, said that AI is a "powerful and empowering tool" in ESG data.
"It can help companies in collecting and cleaning up ESG data, and also has predictive capabilities that can help with risk evaluation and decision-making," he said.
Despite this, Tu offers a fair warning — we cannot put blind faith in AI and technology. He said that there must be a system with clear rules and common metrics for managing climate-related risks.
“There are a variety of standards out there, both global and local, that still affect the organization of data for us. There are also different ways to rate and benchmark a company’s ESG performance. The industry is very new and requires clear regulation to work its magic,” Tu added.
In Singapore, where MioTech is gaining traction, authorities have been coming down hard on greenwashing. The Monetary Authority of Singapore (MAS) has pledged to tackle the problem, which it considers the major barrier to expanding sustainable finance. MioTech launched its Singapore and Southeast Asia ESG dataset, a first-of-its-kind in the region.
Over the last few years, governments worldwide have been increasing their enforcement actions and civil suits against companies engaging in greenwashing. In the U.S., for example, the Securities and Exchange Commission (SEC) has noted the growing trend of funds and investment advisers offering strategies that focus on ESG factors. SEC responded, saying it would assess whether the firms’ processes and practices match their disclosures, review fund advertising for false or misleading statements, and review proxy voting policies and procedures.
"We are likely to see more greenwashing claims as public attention on climate change grows and sustainability becomes increasingly important in consumer and investor decision-making. Regulators will be more proactive, and new sanctions for greenwashing will be introduced. The wave of securities actions in the U.S. will be copied in other jurisdictions, and a wider range of corporate actors will be targeted beyond the carbon majors — including financial institutions, insurers, and advertising agencies," partners at Norton Rose Fulbright said.