Michele Demers, CEO of Boundless Impact, outlines key strategies for spotting corporate greenwashing in ImpactAlpha, emphasizing data verification and science-based impact assessment to ensure accountability in sustainability claims.

Investors aren’t walking away from sustainability — they’re walking away from bad data. Investors, regulators and corporate leaders are demanding clear, science-backed data — and LCA is emerging as the new standard.

ESG investing was supposed to transform corporate accountability. Instead, it’s been in retreat.

Last year, ESG funds saw record outflows. Investors pulled billions from sustainability-focused portfolios as confidence in ESG ratings collapsed. BlackRock and Vanguard, once vocal about their ESG commitments, slashed their support for social and environmental shareholder proposals. And political backlash has made “ESG” a dirty word in some circles, turning what was meant to be a financial discipline into a culture war battleground.

But the real story isn’t that investors are abandoning sustainability — it’s that they’re demanding something better. ESG’s reliance on self-reported, inconsistent data has fueled greenwashing concerns, and investors are no longer willing to take a company’s word for it. Instead, they’re shifting toward Life Cycle Assessments (LCA) — a science-based framework that provides verifiable data on environmental impact.

The ESG problem: Data without accountability

At its core, ESG investing has had a data integrity problem. Companies self-report their sustainability efforts with little standardization, and the methodologies behind ESG scores vary wildly. One company can receive a high ESG rating from one firm and a low rating from another, making it difficult for investors to assess risk and impact accurately.

Recent studies highlight these inconsistencies:

• A 2023 MIT Sloan study found that ESG ratings from major providers disagree over 50 percent of the time.
• A 2022 London Stock Exchange survey showed that 70 percent of asset managers are concerned about the “quality and consistency” of ESG reporting.
• A 2023 KPMG study found that 63 percent of institutional investors see unreliable data as the biggest barrier to integrating ESG into their strategies.

This lack of consistency has fueled skepticism. According to a 2023 Capital Group survey, nearly half of investors believe greenwashing is widespread in asset management. And a 2022 RepRisk report found that greenwashing incidents in the banking and financial sectors surged 70 percent in a single year.

Investors aren’t walking away from sustainability — they’re walking away from bad data.

The shift to Life Cycle Assessments (LCA)

If ESG falls short, what comes next? Increasingly, investors are turning to Life Cycle Assessment (LCA) — a methodology that provides a cradle-to-grave analysis of a product or company’s environmental footprint.

Unlike ESG scores — which aggregate broad categories of environmental, social and governance factors into a single rating — LCA tracks actual impact at every stage of a supply chain. It measures carbon emissions, water usage, energy consumption and waste generation from raw material extraction through manufacturing, distribution, use and disposal.

This shift toward hard data is already happening:

• Forward-thinking governments including the European Union, Canada, Australia and California now require more granular environmental disclosures from companies. The EU’s Corporate Sustainability Reporting Directive (CSRD), for example, will require over 50,000 companies to disclose detailed environmental impact data using LCA-based methodologies.
• Major investors, including private equity firms and sovereign wealth funds, are integrating LCA into their due diligence processes to validate sustainability claims before making investments.

In short, sustainability investing isn’t disappearing — it’s evolving.

What this means for companies

For companies that want to maintain credibility with investors, the message is clear: Vague ESG commitments and glossy sustainability reports are no longer enough. Investors want numbers, not narratives.

Companies that fail to provide rigorous environmental impact data could face:

• Stricter regulatory scrutiny as reporting requirements tighten.
• Higher capital costs as investors shift toward companies with verifiable sustainability metrics.
• Reputation risks as greenwashing concerns lead to shareholder activism and legal challenges.

On the flip side, companies that embrace LCA and provide science-backed impact data stand to gain:

• Easier access to investment capital as asset managers prioritize transparent, low-risk sustainability investments.
• Stronger market differentiation as buyers and business partners increasingly demand supply chain transparency.
• Regulatory resilience as policymakers crack down on misleading ESG claims.

The future of sustainable investing: Beyond ESG

ESG isn’t going away entirely, but it is being redefined. The days of relying on ESG scores as a catch-all for sustainability are over. Investors, regulators and corporate leaders are demanding clear, science-backed data — and LCA is emerging as the new standard.

For companies and investors alike, this shift represents a critical moment of adaptation. Those that cling to outdated ESG models may find themselves struggling to meet new expectations; those that embrace measurable, verifiable impact metrics will be positioned for long-term success.

Sustainable investing is entering a new phase — one where accountability, transparency and hard data take center stage. The companies that recognize this now will be the ones that thrive in the years ahead.