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Today, companies publish extensive sustainability reports, providing information on CO₂ emissions, climate targets, and environmental strategies among others Politicians, investors and the general public usually assume that this information is actually understood and that it influences decisions. But is that really true?
A recent study by Frankfurt School’s International Advisory Services and the University of Bern found that while people can generally contextualise sustainability information, they make systematic errors that can have far-reaching consequences.
Can We Actually Judge What’s Green?
In a large-scale survey, the study sought to investigate how well people can assess the sustainability performance of companies based on emissions data. More than 3,400 individuals participated, including students, financial experts, and retail investors from EU countries. We also surveyed representative samples from the US and UK populations. Each person rated several companies on a scale from “not green” to “very green,” based on information about the companies’ CO₂ emissions. Objective environmental performance was determined using real emissions data and divided into the categories shown to participants. Ultimately, we wanted to test whether people can actually distinguish between “green” and “brown” companies.
Trending Towards the Middle: Distorted Sustainability Ratings
The results initially paint a surprisingly positive picture: participants are quite capable of recognising differences. On average, companies with lower emissions are rated as more environmentally friendly than companies with high emissions. So it’s clear that the perception is not random. At the same time however, systematic errors in categorisation become apparent where participants tended to shift their ratings toward the middle of the scale. Pollution-intensive companies are thus perceived as less “brown,” while particularly environmentally friendly companies are not rated as “green” as their actual emissions would justify.
This so-called centrality effect can have serious consequences for the economy and the environment:
To make matters worse, this centrality effect is asymmetrical and more pronounced for green companies. This means green companies receive even less recognition for their sustainability efforts. Ultimately, this can result in sustainability information having far less impact on the sustainable development of the economy than anticipated.
Why Raw Emissions Data Doesn’t Work
Another important finding concerns the presentation of emissions data. The participants’ ability to recognise differences between companies depends heavily on how the information is presented. When emissions were given only as absolute numbers, assessment was difficult. However, when the data was presented relatively,for example, compared to the industry average or per unit of revenue, participants were significantly better at distinguishing between green and brown companies. Relatable comparisons, such as household equivalents (e.g., “The company emitted as much as 40,000 German households.”), also improved understanding.
…and why Expertise Alone Isn’t Enough
It was also surprising that expert knowledge only helps to a limited extent. Financial and sustainability experts were no better at assessing the sustainability performance of companies compared to other participants. This suggests that the problem lies less in a lack of knowledge and more in the sheer complexity of the information itself.
These results have important implications for policy and regulation. Many current initiatives rely on the assumption that more transparency automatically leads to better decisions in the sustainability transformation, for example in the EU, through the Corporate Sustainability Reporting Directive (CSRD). However, our study shows that additional information alone is not enough. The crucial factor is how this information is provided and processed. Clear benchmarks, understandable units, and well-designed visuals can help ensure that sustainability reports are actually understood and thus incorporated into decision-making.
If sustainability information is to have a real impact, it must be not only accurate but also understandable. Otherwise, there is a risk that even well-intentioned transparency will fail to achieve its goals.
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The full paper can be accessed here.
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