6 minute read
What is greenwashing?
Greenwashing is “marketing that portrays an organisation’s products, activities or policies as producing positive environmental outcomes when this is not the case.”1
In his book Green Marketing, John Grant identified thirteen traps that companies can fall into, intentionally or innocently.
1. Defending the indefensible
For example, highlight the minor or perceived benefits of a course of action while neglecting to acknowledge the understood ill effects/more beneficial outcomes if the action was not taken at all
2. The fig leaf
Proudly advertising a small good deed to cover a much greater bad action(s). In the contest of asset management this might be a significant promotional campaign focusing on ESG integrated funds while not acknowledging that the majority of the product line have no ESG integration.
3. Getting your facts wrong
Whether due to poor research or willful mis-manipulation of data. Making claims about the relative sustainability of a product or service compared to another needs to be absolutely watertight
4. Using the wrong facts
Or only selective facts/data or cherry picking data to come up with comparisons and statistics. We are all well aware that is a no go when it comes to representing performance, the same is true for sustainability and could one day in the not-too-distant future be equally as culpable in the eyes of the regulator.
5. Claims without proof
Making unsubstantiated claims or claims that are overly ambitious compared to the reality.
6. The stay of execution
Setting long-term goals is important, but it is not helpful or honest to simply put off the hard work of addressing sustainability challenges. Without current action as well as long-term commitment, it can appear weak and short-termist.
7. Hedging your bets
It’s important to know what is going on across the organisation! This is of course a proportionally greater challenge the larger the organisation gets. If it transpires that certain departments or colleagues are writing about lobbying or petitioning certain issues. It is vital to ensure your messaging is aligned. Inconsistency breeds mistrust.
8. From comparative to superlative
Definitive statements loose the subtlety of genuine comparisons. It also risks nuance being lost in pursuit of a clean and engaging headline statement.
9. Low standards
Due diligence is important for any awards or certifications. Association with organisations that certify any and all can be reputationally damaging for all associated.
10. The whopper
Claims that look too good to true often are. Even if they are true, without clearly stated explanation and evidence of validity they can still have the opposite of the intended effect and promote distrust.
11. Invent research to argue your case
Using ‘pocket’ think tanks and research institutes to find facts to suit your theories. Think of tobacco in the mid-20th century or oil companies in the 1990s who both used lobbying and advertising to sow doubts about the integrity of the IPCC.
12. Detoxify the language
Rebranding or relabelling to disassociate from now undesirable or unfashionable factors. In asset management this might be changing fund names to include sustainability ‘buzz words’.
13. Natural seeming
People intuitively think that natural looking and sounding things are sustainable and environmentally friendly.
In The Greenwash Guide, change agency Futerra identify ten signs of greenwashing. There is some overlap with Grant’s list above and some additional thoughts:
1. Fluffy language
Using words or terms with no clear meaning
2. Green products, dirty company
If unsustainable methods are used to produce sustainable products and services, or the over emphasis on one or a few sustainable offerings.
3. Suggestive pictures
‘Green’ images that suggest an unjustified green/sustainable impact.
4. Irrelevant claims
Overemphasising one small green/sustainable attribute when everything else is sub-par.
5. Best in class?
Claiming to be slightly greener than others, even if the bar is very low.
6. Just not credible
Greening an unsustainable or dangerous product doesn’t make it better.
Overuse of jargon or displaying complex information that only an expert could correctly interpret.
8. Imaginary friends
A label that looks like a third-party endorsement but is in fact made up/issued by the company in question.
9. No proof
Claims that could be correct, but have no supporting evidence
10. Out-right lying
Fabricated claims or data2
Read: Alessia de Quincey and Nikesh Pandit – Greenwashing in financial services: rising regulatory temperature – sections i and iii.
- The primary regulatory aim for protecting against greenwashing is to ensure that consumers have access to green financial products and services that meet their needs and preferences.
- Sectional and regional differences impact what can be defined as sustainable, making sweeping definitions incredibly difficult. What may be genuinely progressive sustainability in one region or sector may be only best or expected practice in another.
- The FCAs stated examples of what greenwashing might look like include:
- A passive fund with an ESG name tracking an index that does not hold itself to be ESG focused, with limited ESG drive exclusions from the index.
- A product that was marketed as contributing to ‘positive environmental impact’ that invested in companies with low carbon footprints but could not justifiably be claimed to be contributing to the transition to a low carbon economy.
- Instances where it was challenging to reconcile a fund’s holdings with its proposed focus and statements setting expectations for consumers. E.g. significant holdings that seemed inconsistent with the mandate without adequate justification or explanation.
- Practical steps firms can take to mitigate the risk of greenwashing:
- Employee training and education
- Internal assessment processes
- Clear record of decisions taken regarding ESG issues of holdings
- Seek third-party advice on product sustainability assessments where necessary
- Regularly monitor green credentials marketed to ensure they stay up to date
Just as ESG and sustainability are not solely about environmental factors, firms across industries have been accused of over-amplifying their social credentials compared to reality or exposed as actively trying to tap into their consumer bases social sensitivities to sell products.
Many of the potential traps that face organisations are the same as those of greenwashing, but with a social perspective rather than an environmental one.
Whilst social issues can exist at all levels of investment, investors at a country level face greater challenges when it comes to human rights abuses, High profile reports of human rights abuses and geopolitical challenges can prompt outpourings of popular sentiment.
For example, the Russian invasion of Ukraine in early 2022 once again heightened attention on the ethical and moral responsibilities of investors. Governments and the public leaned on corporates and investment firms alike to divest from Russian holdings.
Read: Laurence Fletcher and Tommy Stubbington – ESG investing: funds weigh sovereign debt profits against human rights – sections Profit vs rights and ‘Turning a blind eye to abuses’
- Emerging economies with documented human rights abuses continue to offer attractive investment opportunities. Managers face a dilemma in balancing their core mandate to generate returns with the social conscious of their underlying investors and the stated position of the overarching firm.
- As with other ESG metrics, while some countries may score poorly in certain areas, they may score well in others, making the decision to exclude or invest far from simple.
- Managers also face challenges as not all their clients hold the same values nor agree on exclusions driven from an ethical position
Further reading: PRI – Human rights in sovereign debt: the role of investors