Introduction

This study examines the role of NGO activism in scrutinising corporate environmental and social (E&S) claims, specifically alleged instances of “E&S-washing”. Despite NGOs being recognised as key contributors to sustainable development, systematic evidence of their influence has been limited. The research uses a global dataset of 1,212 NGO allegations against 287 listed firms across 24 countries (2011–2022), focusing on the financial and real effects of these campaigns.

Hypotheses development

The authors propose six hypotheses. NGOs are more likely to target firms that are highly visible and have material E&S impacts. Allegations are expected to lead to negative stock and media reactions, especially when related to financially-material issues and made by influential NGOs. Firms may respond through press statements or operational changes. The study also considers the interplay between NGOs and institutional investors, with particular focus on “voice” (engagement) and “exit” (divestment) channels.

Data

Data on NGO campaigns were sourced from SigWatch, covering 11,000 NGOs and 75,000 campaigns. The study filtered these for E&S-washing allegations targeting listed firms with sustainability reports and sufficient financial data. Supplementary data include media coverage (RepRisk), institutional ownership (FactSet), emissions data (Trucost), and reporting practices (Corporate Register and Bloomberg).

Anatomy of NGOs’ E&S-washing allegations

The allegations are evenly split between environmental (49.2%) and social (50.8%) issues. Climate change is the most frequent topic (30.2%), with 90% of these being financially material. Social issues often relate to consumer health (22%) and product transparency.

Most claims (36.4%) involve misleading statements, followed by inconsistencies between public pledges and actions (13.8%). Common outlets include product labelling (25.3%), advertising (23.1%), and PR campaigns (13.3%). Only 1% of allegations concern sustainability or financial reports.

NGOs tend to target larger firms with greater public visibility and media coverage. Oil and gas, consumer goods, and services sectors are most frequently targeted. Firms tying executive pay to ESG metrics are more likely to be accused of E&S-washing.

Stock market and media reactions to NGOs’ E&S-washing allegations

Stock prices decline by an average of 0.34% over a three-day window around allegation announcements. This effect is stronger (up to -0.9%) when allegations concern financially-material environmental issues and come from influential NGOs.

Media coverage of negative E&S news increases by 14.6% following allegations. Material allegations prompt greater increases in media scrutiny, especially for environmental topics. However, no significant amplification is found based on NGO influence.

Corporate reactions to NGOs’ E&S-washing allegations

Only 10% of firms issue press responses. Of these, 6% resist the claims, while 4% concede. Firms are less likely to concede when allegations concern financially-material environmental issues. Influential NGOs increase the likelihood of a press response.

Operationally, firms reduce Scope 1 emissions by 12% and Scope 2 by 10% following climate-washing allegations. However, these reductions are offset by a rise in Scope 3 emissions, indicating emissions may be moved to supply chains rather than eliminated.

E&S-washing allegations as catalysts for institutional investors

Firms with high ownership by investors subject to stewardship codes show stronger reductions in Scope 1 and 2 emissions. These investors also appear to drive increases in Scope 3 emissions, reflecting both engagement and divestment actions triggered by NGO campaigns. NGOs thus act as catalysts for institutional investor responses.