Over the last few decades, public consciousness of environmental and societal issues has increased. As awareness has grown, so too has the popularity of ESG investing. That is, investments with a specific focus on environmental, social, and governance factors.

The Paris Agreement and the commitments of world leaders to lower carbon emissions ensure that climate change remains on investors’ minds. Likewise, coronavirus, the gender pay gap, and fights for societal change – like those represented by the Black Lives Matter movement – mean that social issues are also centre-stage.

Increased investor interest has led to more fund choices and larger inflows. It has also led to a rise in companies exploiting those looking to align their investments with their values on ESG issues. This is known as “greenwashing”.

But what exactly is greenwashing, what are the red flags to look out for, and how can Expert Wealth help you avoid it?

Keep reading to find out.

Companies can exaggerate their ESG credentials, intentionally or inadvertently

“Greenwashing” occurs when a company claims to be more ethically, environmentally, and socially engaged than it actually is.

This can be a marketing ploy, designed to appeal to socially-conscious consumers. It can also happen despite a company’s or group’s best intentions.

Fast-fashion forerunners boohoo have a poor track record on ESG awareness

A recent Guardian report confirms that Brits spend around £54 billion a year on clothing and footwear. However, the evidence points to fast fashion having very poor ESG credentials.

Around 300,000 tonnes of old clothes are burned or sent to landfill each year in the UK alone, and, according to the BBC, the industry is responsible for around 10% of greenhouse gas emissions from human activity.

In 2019, a report by the Environmental Audit Committee (EAC) named boohoo as one of the least sustainable fashion brands in the UK and allegations of worker exploitation followed.

The company has poor transparency in its supply chain, and around staff pay and gender equality.

Its “Sustainable collection” has also come under fire. The range contains acrylic – a type of plastic – while the cost of some items in the range is also raising eyebrows.

Coldplay were recently labelled “useful idiots” after their world tour became embroiled in a greenwashing scandal

The carbon footprint of world travel can be huge. Conscious of this, UK rock band Coldplay have taken several steps to limit the environmental impact of their “music of the spheres” tour.

As well as planting a tree for every ticket sold, shows will also feature a kinetic dancefloor. This technology generates the energy needed to power the gig through the movement of dancing concert-goers.

The Guardian confirms that the band also recently partnered with a Finnish oil company, Neste.

While the company claims to be the world’s largest producer of sustainable biofuels in the world, its track record in other areas left Coldplay accused of greenwashing. A closer examination of the company’s whole production process found that at least 10,000 hectares of Indonesian and Malaysian forest had been cleared for palm oil by Neste suppliers.

The case highlights the need for good research before making any choices based on ESG credentials.

There are some greenwashing red flags to look out for

1. “Green” imagery and vague claims

As Coldplay found out, conducting diligent research is key. Look beyond “green” imagery and focus on companies who evidence their claims with precise figures.

2. Fluffy language

It’s very easy to throw words around with little evidence to back them up. Calling a product “eco”, “organic”, or “natural” might make it sound like sustainability is important for the company, but does the reality match the claim?

Boohoo labelled an entire range “sustainable” but ensuring that each step in a production process or supply chain is genuinely ESG-aware isn’t that simple.

Beware of generalisations and sweeping statements.

3. Unsubstantiated comparisons

Also, be on the lookout for meaningless comparisons.

A company or product that is “greener” or “eco-friendlier” is meaningless if you don’t know who or what the company is judging its efforts against.

Get in touch

If you are looking to align your investments with your values on ESG issues, you’ll be keen to avoid funds guilty of greenwashing. Companies that engage in greenwashing hamper global efforts to tackle climate change and damage public perception. That is why the FCA is currently working so hard to tackle the issue.

With decades of experience, our Chartered Financial Planners can work with you so please get in touch and speak to us today.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.