What is Greenwashing in Investing? | U.S. Bank (2024)

Key takeaways

If you’re a purpose-driven investor, you may already be engaged in impact investing.

You’ve selected investments based on their positive environmental or social impact and the prospect of favorable returns. You’ve established a portfolio that mirrors your values. But how can you be sure that every company or fund in your investment portfolio is genuinely committed to a higher set of business standards?

Could you be “greenwashed” and not know it? It’s possible.

What is greenwashing?

In its basic form, greenwashing uses manipulation and misinformation to garner consumer confidence around a company’s environmental, social or governance (ESG) claims. According to Chad Burlingame, CFA, CAIA, director of Impact Investing at U.S. Bank, “Greenwashing is marketing hype that applies to companies overstating their ESG efforts. It also shows up in the investment industry when a fund gets re-labeled as impact or when an investment manager repurposes it as impact.”

Companies across the globe may misrepresent their green credentials to deceive investors and consumers for economic gain or public favor. Greenwashing can be disguised in many ways:

  • An organization states it’s “green conscious,” when, in reality, it has no concrete green initiatives
  • A business invests more advertising dollars on its environmentally friendly brands than it spends on positive green practices or sustainability programs
  • A company maintains effective waste-reduction programs during manufacturing, but its end-product is harmful to the environment

How to uncover greenwashing

You don’t have to be an investigative reporter to uncover questionable greenwashing practices. Look for red flags in marketing ads, on product labels or on a company’s website:1

  • Overused industry language. “Eco-friendly” or “all natural” – claimed by thousands of companies
  • Misleading graphic. Mountains, trees and streams on plastic bottles portray environmental compassion
  • Award claims. A brand states it’s the best environmental product in the industry without proof
  • Purposefully vague text. Poorly worded language that over hypes a product and is intended to mislead
  • Seals and labels. Text featuring “award-winning product” on a simulated environmental symbol
  • Scientific terms and buzzwords. 100% biodegradable or 100% compostable product claims

Seek investment help to avoid greenwashing

If you’re new to impact investing, you may be unsure where or how to begin. Or, if your portfolio is already focused on impact investments, you may want to re-evaluate it with a critical eye to greenwashing. In any case, consider working with a financial professional as your next step.

Burlingame acknowledges, “Impact investing and its terminology can be confusing to investors. Greenwashing is an additional challenge and creates a bad investor experience. Your financial professional is a first line of defense who provides transparency and guidance.”

Experienced financial professionals can serve as a safeguard against greenwashing. Ask them how they are incorporating ESG factors into their work practices. Listen for objectivity in their comments. As Burlingame asserts, “Questions should be asked of [your professional]. It allows them to highlight their corporate reputation and commitment to impact.”

ESG criteria include:

  • Environmental – factors such as climate change, energy efficiency, pollution, water scarcity or biodiversity
  • Social – factors such as human rights, gender and racial diversity
  • Governance – factors such as board composition, executive pay, audit committee, lobbying activities or political contributions

Furthermore, financial professionals review data and eliminate ambiguity in three critical investment areas when performing their due diligence:

  • Benefits – Does the investment generate non-financial ESG benefits in addition to a financial return?
  • Significance – How significant are ESG factors to the financial performance?
  • Effort – Do the results come from authentic ESG efforts or just chance?

As impact investing demands rise, the available data and reporting capabilities are growing, too. Burlingame reinforces the growth. “In the 1990s, 20 companies disclosed ESG data. Today, that number is over 9,000. The increase in data and ability to analyze it helps quantify the non-financial benefits. That allows financial professionals to go beyond screening out the bad or tilting toward the good, and instead direct capital to potential solutions.”

Investigate for greenwashing before investing

While the ESG investing landscape is comprised of many ethics-based businesses and investment managers, greenwashing remains a concern due to a lack of detailed regulatory oversight. Working with a trusted financial professional to evaluate the impact claims of any business or fund manager can be critical to your investment endeavor. It may also simply provide greater peace of mind.

Learn more about how we approach impact investing.

Impact investment funds are speculative and involve a high degree of risk. These investments involve a substantially more complicated set of investment strategies than traditional investments in stocks or bonds, including the risks of using derivatives, leverage and short sales, which can magnify potential losses or gains. There is no guarantee an investment in an impact investment fund will meet projected investment or income objectives. Always refer to a Fund’s most current offering documents for a more thorough discussion of risks and other specific characteristics associated with investing in impact investment funds.

What is Greenwashing in Investing? | U.S. Bank (2024)

FAQs

What is greenwashing in banks? ›

Greenwashing is a fraudulent technique employed in marketing and communication, aimed at promoting a brand as more responsible, ethical, and environmentally friendly than it actually is.

What is greenwashing in investments? ›

The working definition of greenwashing within investments is, “a practice where sustainability-related statements, declarations, actions, or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product, or financial services.

What does greenwashing mean in sustainable investing everfi? ›

Greenwashing refers to the corporate practice of misleading consumers that a company's products, services, or operating practices are socially or environmentally responsible.

Which bank is accused of greenwashing? ›

Barclays is being accused by environmental groups of greenwashing after helping to arrange €4bn (£3.4bn) in financing for the Italian oil company Eni in a way that allows them to qualify towards its $1tn sustainable financing goal.

How does greenwashing affect investors? ›

Ethical Concerns: For investors who genuinely care about making a positive impact through their investments, greenwashing can raise ethical concerns. Investing in companies with misleading sustainability claims may inadvertently support practices that harm the environment or society.

How can banks avoid greenwashing? ›

How to avoid greenwashing in green banking
  1. Be more specific: avoid claims that are poorly defined or broad, leading to potential misunderstandings by consumers.
  2. Provide proof: choose claims that can be easily backed by accessible and reliable proof.
Apr 14, 2023

What is greenwashing and example? ›

Examples of Greenwashing

In either case, the label is deceptive if any part of the package or its contents, other than minor components, cannot be recycled. An area rug is labeled “50% more recycled content than before.” In fact, the manufacturer increased the recycled content to 3% from 2%.

How to avoid greenwashing investment? ›

Know which companies are listed in green funds. Look beyond buzzwords, such as "sustainable," for specific phrases, such as "fossil-fuel free." Use screening tools like Morningstar that rate these funds on how green they are.

What is greenwashing and why is it a problem? ›

Greenwashing presents a significant obstacle to tackling climate change. By misleading the public to believe that a company or other entity is doing more to protect the environment than it is, greenwashing promotes false solutions to the climate crisis that distract from and delay concrete and credible action.

What does greenwashing mean in sustainable investing quizizz? ›

Greenwashing in sustainable investing refers to the practice of companies overstating their sustainability claims. These companies may make misleading or exaggerated statements about their environmental or social impact in order to appear more sustainable than they actually are.

What does greenwashing mean in sustainable investing quiz question 3 of 5? ›

Final answer: Greenwashing in sustainable investing refers to the practice of misleading investors about a company's environmental benefits in order to appear more sustainable. It involves making false or exaggerated claims about environmental or social impact.

What does greenwashing mean in sustainable investing brainly? ›

Greenwashing refers to the practice of companies making false or exaggerated claims about their environmental efforts in order to appear more environmentally friendly than they actually are. It is a deceptive strategy used by some companies to deceive consumers and stakeholders.

Is greenwashing illegal in the US? ›

Regarding greenwashing, they created a voluntary guidelines to help people and companies in differentiating green products from greenwashed products. 👉 These guidelines give the Federal Trade Commission the right to prosecute false and misleading claims.

How bad is greenwashing? ›

Greenwashing can damage a brand reputation

And beyond just reputational damage, greenwashed misclaims can lead to difficult and expensive legal action. Nestlé has faced a lawsuit over its 'sustainably sourced' labelling, due to its cocoa products being suspected of relying on child labour and causing deforestation.

Is Coca-Cola greenwashing? ›

It consumes almost 200,000 plastic bottles each minute and generates 2.9 million tonnes of plastic garbage annually [7]. In 2021, Coca-Cola produced 25 billion plastic bottles, more than the previous year. This is why many people criticise Coca-Cola for being greenwashing [2].

What is greenwashing with an example? ›

Greenwashing happens when a company makes an environmental claim about something the organization is doing that is intended to promote a sense of environmental impact that doesn't exist. The green claim is typically about some form of positive effect on the environment.

What are the three types of greenwashing? ›

Three common types of greenwashing are the use of environmental imagery, misleading labels and language, and hidden tradeoffs where the company emphasizes one sustainable aspect of a product but they also engage in environmentally damaging practices.

Is greenwashing a financial crime? ›

In terms of greenwashing, the criminal risk remains ignored by companies and unexplored by lawyers to date. Greenwashing practices by listed companies is likely to fall under the financial offense of disseminating false or misleading information, as defined in article L.

What company is known for greenwashing? ›

Summary: The nine biggest greenwashing fines
CompanyFine
Goldman Sachs$4 million
Keurig$2.2 million
BNY Mellon$1.5 million
H&M & Decathlon$430,500 and $530,000
5 more rows
Feb 8, 2024

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