One of the main issues with greenwashing is that nobody knows exactly what it is.
People can think differently about the same thing. So, what appears as greenwashing to one person can seem acceptable to another. When it comes to defining ethical values and standpoints, there is not a homogenous group of values. We all have our own thoughts and opinions.
However, a general definition of greenwashing is when a company gives the false impression that their products or services are more environmentally sound than they actually are. It is derived from the term ‘whitewashing’ which means to use misleading information to gloss over bad behaviour. If a product or service is genuinely ‘green’ or ‘eco-friendly’ the company should be able to back up their claims with legitimate data.
Probably the most well-known example of greenwashing is when hotels started to ask their guests to reuse their towels to help save water and limit the impact on the environment. But people questioned whether it was really to save the environment or to cut the cost of the hotels’ laundry bill.
In terms of finance, greenwashing occurs when companies make unsubstantiated claims about the green credentials of products such as an investment fund or pension.
There is also a risk of so called ‘Rainbow washing’ where companies claim to align their products or services with the UN Sustainable Development Goals.
Why is greenwashing bad?
Put simply, it’s unethical. It misleads the consumer and could result in them buying, or investing in, a product that they would have otherwise avoided. When it comes to investing, there needs to be a clear line of communication to ensure that the consumer knows exactly what they are purchasing.
How to spot greenwashing?
In terms of your finances, that’s where we come in! There is a lot of terminology relating to the ethical marketplace and consumers may feel confused or hoodwinked by clever marketing. The ethics or sustainability of a fund are often in the eyes of the beholder. When we meet with a client, we discuss what ethical investment means to them, so that we can understand what style of investment might be appropriate. We screen all our funds very carefully to confirm their green credentials to make sure that they will align to expectations before we recommend them to our clients. We will ensure that the funds we advise on match your ethical views and beliefs. We also make sure to continually review the funds that we recommend to ensure their ongoing green credentials. And we’re not afraid to question fund managers on your behalf!
It is important to take professional advice before making any decision relating to your personal finances. Information within this article does not provide individual tailored investment advice and is for guidance only. We cannot assume legal liability for any errors or omissions it might contain. Ethical Futures llp is authorised and regulated by the Financial Conduct Authority.