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How big a concern is greenwashing in investing?

12/06/2021

What is your biggest concern when it comes to responsible investing? 

This was the question posed by investment management firm, Quilter, in a recent survey. The responses revealed that greenwashing came out top, with 44% of investors citing it as their biggest worry when it comes to ESG investing. But what is greenwashing, and how can its negative impact be tackled?

What is greenwashing?

Greenwashing is a term used across multiple industries. It refers to products or services that describe themselves as environmentally friendly, but use false or misleading information – or exaggerated claims – to make them appear more green than they really are. 

This tactic has been widely used to appeal to increasing numbers of people who are switching to more ethical or eco-friendly products and services. The first use of the word was by environmentalist Jay Westerveld in the 1980s, upon noticing that hotels were asking guests to reuse towels to save the environment. In the absence of any other attempts by the hotels to reduce their environmental impact, Westerveld was convinced that their primary motive was not protecting the environment, but reducing laundry costs. 

What is the impact of greenwashing on investing? 

In investing, as in other sectors, more and more people are looking for sustainability. In 2020, say Morningstar, sustainable funds brought in over $51bn in new investments – a new record, and more than double the figure from the previous year. 

However, there is no standard definition of “sustainable” when it comes to investment funds. While some “sustainable” funds will avoid certain sectors, such as tobacco, fossil fuels or weapons, others are built fully around environmentally friendly sectors, like green energy. 

There are also funds which play on the fact that they offset carbon emissions or have some other sustainable impact, but it is important for investors to do their research: these funds may still include brands that are not known for their sustainable credentials. 

As a result, in April the House of Commons Treasury Committee urged the Financial Conduct Authority to take action against greenwashing in the savings and investment sectors, suggesting that carbon or climate labels could be made mandatory. It is clear that more needs to be done to allow investors to choose truly green investments with greater ease, and to help the UK to meet its net-zero carbon emissions target by 2050. 

“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”

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