Crosswashing in Sustainable Investing: Unveiling Strategic Practices Impacting ESG Scores

TL;DR

This paper identifies and analyzes crosswashing, a new form of greenwashing in sustainable investing where companies artificially inflate ESG scores through strategic investments, highlighting its impact on ESG assessments and the need for improved regulation.

Contribution

It introduces the concept of crosswashing, a novel greenwashing strategy, and examines its effects on ESG ratings using a quantitative MCDM model.

Findings

Crosswashing inflates ESG scores without genuine sustainability improvements.

Current ESG assessments do not account for crosswashing practices.

Crosswashing can mislead investors and regulators about corporate sustainability.

Abstract

This paper introduces and defines a novel concept in sustainable investing, termed crosswashing, and explore its impact on ESG (Environmental, Social, and Governance) ratings through quantitative analysis using a Multi-Criteria Decision Making (MCDM) model. The study emphasises that this specific form of greenwashing is not currently considered in existing ESG assessments, potentially leading to an inflated perception of corporate ethical practices. Unlike traditional greenwashing, crosswashing involves companies strategically investing in sustainable activities to boost Environmental, Social, and Governance (ESG) scores while preserving nonsustainable core operations. By unveiling the nuances of crosswashing, the research contributes to a more nuanced understanding of sustainable investing, offering insights for improved evaluation and regulation of corporate environmental and ethical responsibilities.