As sustainability efforts and environmental consciousness grows, greenwashing (and the social justice equivalent) follows. Greenwashing occurs when a company pretends to be more environmentally focused than they actually are, and it’s usually done with the sole purpose of turning a profit. Have you noticed companies that do an excellent job of marketing how environmentally conscious they are, only to drill down to the details and find out that it’s all talk and no action? Yep, that’s greenwashing and it’s happening in the sustainable investing world as well.
Within the investing world, there are plenty of companies that are notorious for paying tons of lip service to sustainability while their investment products and actions completely demonstrate otherwise. Gideon went to a sustainability conference last year in which all of the big institutional players on Wall Street participated. Speaker after speaker got up on stage and stated with conviction how “sustainability is and has always been part of our ethos.” These types of comments make us extremely skeptical, especially since shareholder capitalism which has dominated the last several decades has dictated that companies have one purpose and one purpose only, and that is to turn a profit for their shareholders. Also, side note Wall Street was originally built around the slave.
As such, we approach sustainable investing with a healthy dose of skepticism. We’ve seen plenty of wealth managers and investment managers who claim to be sustainable or who offer sustainable options, but then it turns out they are doing the bare minimum if anything at all to actually be sustainable.
So how does one spot greenwashing? It can be quite tricky especially if you’re unfamiliar with the landscape. You can start by asking yourself these questions and doing a bit of research on the company or fund in question.
Does the company have a formal commitment or mission statement around sustainable investing? Or is sustainability just a recently added product line perhaps used to create additional revenue?
Are there clear actions to back-up the claims made by the company? Or is it just wishes and empty promises?
What is the company’s track record when it comes to shareholder resolutions, proxy voting, and engaging with executive teams?
What greenwashing fundamentally comes down to is, does a company or fund actually care about generating positive impact? You can also use these third party rating tools to determine how green a company or fund actually is.