In recent years, the likes of David Attenborough and Greta Thunberg have raised public consciousness of environmental matters.
As we grow more aware of our impact on the planet, it is only right that we’d want the financial decisions we make to align with our values on this important issue.
This has led to an increase in sustainable and ESG investing – the latter focused on investments with environmental, societal, and governance factors to the fore.
The “environmental” aspect is often the one that comes most readily to mind. It is especially important as the push for countries to cut carbon emissions continues and the war in Ukraine threatens to damage environmental efforts.
While investing “green” is a great way to cut your carbon footprint, you’ll need to be wary of “greenwashing” and the impact it can have on the green credentials of your investments.
But what exactly is greenwashing, and why is it such an issue within ESG investing? Keep reading to find out.
Greenwashing can mislead consumers, either maliciously or unintentionally
Simply put, greenwashing occurs when a company claims to be environmentally conscious while indulging in practices considered not green. It might also involve a company overstating or exaggerating its ESG credentials.
The Volkswagen emissions scandal
A well-publicised example of greenwashing involved Volkswagen emissions back in 2015. At the time, VW was pushing diesel cars in the US with a marketing campaign that claimed its cars had low emissions.
The Environmental Protection Agency (EPA), however, found that many of its cars were fitted with a “defeat device” that cheated emissions tests. This made the cars seem less harmful to the environment than they actually were. In reality, the engines released nitrogen oxide pollutants up to 40 times above the US’s allowable limit.
When pressed on the issue, VW admitted that around 11 million of its cars were fitted with these defeat devices.
Coldplay’s good intentions were derailed by greenwashing
Greenwashing isn’t always done with malicious intent. Some organisations or bodies might not realise they’re doing it.
Take the British band and worldwide phenomenon Coldplay, for example. In an attempt to cut their emissions while touring, the British band partnered with the Finnish oil company, Neste.
Neste claims to be the largest producer of sustainable biofuels in the world, making them appear a great choice for a band conscious of the carbon footprint of a world tour.
Unfortunately for Coldplay, the methods employed by Neste’s suppliers made the whole production process much less green than the band had hoped. At least 10,000 hectares of forest in countries like Indonesia and Malaysia have already been cleared for palm oil by Neste suppliers.
Coldplay’s actions were well-intentioned, but the effects of greenwashing – and of not completing diligent research – led to a choice that did not align with their values or their ultimate goal.
Greenwashing can be more damaging than you might expect
When companies engage in greenwashing, they hamper global efforts to tackle climate change and damage progress towards the net-zero carbon goals of the Paris Agreement.
Not only can greenwashing lead to incorrect assumptions about our impact on the environment, but it can also damage public perception. This affects companies that aren’t involved in greenwashing, as they find themselves inadvertently lumped in with the true culprits.
So, how can you spot greenwashing and avoid the companies that are doing it?
Identify and avoid greenwashing with 3 simple steps
As the push for net-zero continues, easily spotting companies that are greenwashing is vital, and should give you absolute faith in the ones you choose.
1. Be on the lookout for fluffy language
One of the ways to identify greenwashing is to look for “fluffy” language.
Quite often, a company that is greenwashing will use buzzwords to build the illusion of being environmentally conscious, most often without any figures or evidence to back this up. Phrases like “eco-friendly” or “natural” are some common ones to look out for.
2. Do your own research
If you have suspicions about a company’s environmental credentials, consider conducting your own research into its practices and supply chains.
IKEA, for example, claimed to have sustainability as one of its main focuses, but unknowingly used illegally harvested lumber along its supply chain and in furniture that was labelled “sustainable”.
You might not be able to research this deeply, but you could identify the best and worst companies in a given sector and rule out some investments from the start.
3. Let Boolers do the hard work for you
Boolers recently developed ESG portfolios that allow you to align your investments to your values on governance, social, and environmental issues, safe in the knowledge that we have done all the necessary research and due diligence on your behalf.
If you’d like to discuss your sustainable investment options get in touch now.
Get in touch
Boolers can help you to invest your money ethically. If you would like to discuss suitable ESG investments or you have questions on any other aspect of ethical investing, please contact us today.
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