If you’re concerned about ‘greenwashing’, you’re not alone; in fact, 65% of advisers have admitted to worrying about the wool being pulled over their eyes when it comes to advising their clients on ‘green’ or ‘sustainable’ investments.
This article will help you understand what greenwashing is and make sure you don’t fall foul of greenwashing when incorporating ESG into your advice for clients.
What is greenwashing?
The term might stir up images of minty fresh mouthwash, but when it comes to clean living, greenwashing is something entirely less wholesome.
In short, greenwashing can be defined as making unsubstantiated or misleading claims to deceive consumers about the sustainability characteristics and benefits of an investment product.
At company level, greenwashing can be done in a number of ways, for example by focusing on ‘green’ projects to create a false impression and detract attention away from less sustainable ventures, or by claiming an environmental benefit where none truly exists. At a fund level, greenwashing occurs when asset managers over-claim and over-sell what they are actually providing in terms of a responsible or sustainable investment.
It’s important to remember that environmental factors only make up the ‘E’ in ESG; it’s also essential that fund managers assess the social and governance factors of an underlying asset to avoid misleading investors. Instances of this have been seen in the press in recent years, where funds have invested in companies which later turn out to have a reliance on cheap labour in their supply chains or corrupt management teams.