08/12/21Greenwashing: What does it mean when investing?

Woodlands in springtime

There is a growing interest in investments that are “sustainable” or “green”. Yet, it can be difficult to spot which investment opportunities will have a real impact, and research shows investors are increasingly sceptical about “greenwashing”.

Greenwashing is when companies or funds give a false impression or provide misleading information about how environmentally friendly they are. These claims may be partly true but are exaggerated in an attempt to mislead consumers and investors. If you want your investments to reflect a greener lifestyle, it can make it difficult to understand which investments fit this criterion.

26% of investors are sceptical about green and ethical investments

Research from Triodos Bank shows that investors are increasingly worried about greenwashing.

In 2020, 17% of investors that don’t currently invest in an ethical fund question how many investments that make claims to consider the environmental and social impact are truly ethical. In 2021, this figure has increased to 26%.

With confusion over the true impact and credentials of these types of investments, it’s not surprising that investors want more transparency. 7 in 10 consumers want more knowledge about where their money is invested, while 8 in 10 also believe all banks and financial providers should be more transparent about how they use people’s money.

At the moment, 54% of consumers believe providers aren’t helpful when it comes to revealing how their money is invested.

It’s not just consumers that are worried about greenwashing either; Schroders’ Institutional Investor Study found that greenwashing was one of the biggest challenges investors face. Almost 6 in 10 investors globally said they were worried due to the lack of clear, agreed definitions on what sustainable investment is.

If you want your investments to have a positive impact on the environment or other green areas, greenwashing can be a worry. The Financial Conduct Authority has issued a warning over industry attempts at greenwashing and has plans to regulate firms providing sustainability data and regulations. But for now, investors will need to consider whether greenwashing could be affecting their choices.

How to spot greenwashing

Review company plans and sustainability reports

If choosing greener investments is important to you, carrying out your own research is a must.

While an investment may refer to themselves as “green” or other buzzwords, remember that there’s not yet an agreed definition for this concept. What you consider to be “green” could be very different from someone else’s criteria, especially when they’re trying to encourage investors.

If you’re investing in individual company stocks, you may want to review their sustainability report and whether future projects align with sustainability goals. Reviewing these materials isn’t a failsafe way to invest in a company with strong green credentials – there’s still a chance they could be promising more than they can deliver – but it can help you spot greenwashing.

Check where a fund is invested

A fund is a way of investing money alongside other investors in a range of businesses. There are now many options that claim to be “green”, “sustainable”, or “responsible” for conscious investors to choose from. However, once again, with no set definition it can be difficult to assess the impact your money will have.

One of the steps you can take is to review the companies the fund invests in. This could include checking the fund allocation percentage for each industry or looking at the list of companies, which you’ll usually find in their prospectus.

According to the Triodos research, this is one of the most common steps investors are taking. Three-quarters of investors new to green investments closely scrutinise the full list of companies their funds invest in. You may be surprised by what you find – few funds, for example, exclude fossil fuels entirely.

Speak to your financial planner

Researching your investment can be time-consuming and may be filled with jargon. If you’re worried about the impact greenwashing could have on your investments, we’re here to help. We can help you wade through the information and discuss what approach you want to take to sustainable investing, as there is no one-size-fits-all solution.

There are many ways to incorporate sustainable objectives into your investment portfolio while balancing this with your goals and risk profile. Please contact us to talk about your investment portfolio.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Your capital is at risk. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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