Acadian Asset Management has developed a ‘green screen’ system to identify greenwashing in companies’ sustainability disclosures.
The tool would use artificial intelligence to better screen companies’ green credentials and establish if they were making unsubstantiated claims about their ethical or environmental practices.
This would include text mining of sustainability reports, regulatory filings, shareholder proposals to identify physical and transition climate risks, discussions of employee well-being and corporate culture during the COVID-19 pandemic, to human rights and supply chain concerns.
It would then cross-check this with what companies said in their annual shareholder meetings and earnings calls versus their actions with answers including quantitative metrics and forward-looking views being rewarded.
If a firm failed to meet its goals, such as by giving vague or outdated responses, then Acadian’s engagement team would follow up with specific questions.
Andy Moniz, Acadian director of responsible investing, said: “Quants are ideally suited to identifying greenwashing because they are data-driven. This new system enables us to analyse significant amounts of both structured and unstructured data.
“We’re merging these datasets together to identify companies that talk a lot about sustainability but perhaps don’t actually do much. The premise being that a company’s actions speak louder than its words.
“In the case of earnings calls, we identify evasive and potentially deceptive talk. Our text mining algorithms assess to what extent managers are directly answering sell-side analysts’ sustainability questions or giving a boilerplate response or an indirect answer.”