Greenwashing - What is it and how to avoid it?
Greenwashing is the act of making an investment or product appear to be more environmentally friendly than it really is. For example, a company might claim that its products are "green" when in reality they have had only minimal impact on our environment. It can also refer to how companies market these green investments by using misleading or inaccurate information which may lead you down false paths with regard to your own personal sustainability goals!
There are many examples of greenwashing. Volkswagen has been caught cheating on emissions tests. They admitted to using a "defect" device that could detect when it was undergoing an inspection, altering performance so as not to exceed limits set for certain pollutants like nitrogen oxide gas.
The financial firm BNY Mellon Investment Advisor recently paid $1.5 million to settle charges brought by the U.S Securities and Exchange Commission that they misrepresented the ESG characteristics of their mutual funds; it turns out 25%of the investments which were touted as "ESQ" quality wasn't known or verified -- a clear indication there's more work left do be done when we try for transparency in our marketplace.
The practice of greenwashing is not illegal everywhere, but outright environmental deception is illegal in the United States. So it’s worth looking into the authenticity and upholding the commitment to sustainability by a company.
Here are a few tips to avoid greenwashing:
Do your research
When it comes to investing in companies that care about the environment, researching their environmental claims is a great way for you to learn more! In 2020, 92% of all S&P 500 Index corporations shared these reports with investors so you can read up on Target, Bank of America, or Disney by checking out what they say online today.
You can also check out recent news stories on eco-friendly projects that companies are doing to investigate whether your investment will stand behind its commitments.
Takeaway: Data is key to tracking the progress of corporate environmental initiatives
Be wary of lofty claims without any specifics
When a company sets an environmental goal without any clear targets or deadlines, it's important to research them thoroughly before investing. Without concrete plans for how they will achieve these aims eventually (or even immediately), you could end up being disappointed when companies get sidetracked or push back deadlines.
Takeaway: Look for transparency from companies about what they're doing to achieve climate targets
Look for verification
With the increasing awareness of the importance of climate change, more and more companies are claiming to be taking steps to reduce their impact. However, it can be difficult to know which companies are actually making a difference, and which ones are just greenwashing their operations. That's why it's important to trust but verify when it comes to corporate climate claims. Look for independent verification of a company's progress, such as third-party audits or certification from respected organizations. This will give you a good idea of whether a company is really walking the walk when it comes to climate action.
Takeaway: For additional peace of mind, get independent verification of a company's climate claims
The world is a better place and there are plenty of companies out here to prove it. So, don't let greenwashing discourage you from investing in businesses that help make our planet more beautiful for all its inhabitants!