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What is ‘greenwashing’ and how can you spot it?

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What is ‘greenwashing’ and how can you spot it?

With climate change on most people’s agenda, and an increasing pressure on individuals to operate in an environmentally friendly way, companies may use this to their advantage to secure investment.

‘Greenwashing’ is when companies market themselves as being environmentally friendly, but do not actually act on this.

As being eco-conscious is a growing trend, with more people opting to invest in green companies, being able to spot firms that are trying to fool you is important for protecting your investment.

According to the Investment Association, one in three pounds of net retail sales were spent on responsible products in 2021.

Some misleading claims may be framed ambiguously by using terms such as ‘sustainable’ and ‘eco-friendly’; it is important for firms to properly define how their operations are eco-friendly, rather than using a blanket statement.

How to protect your investments

If you are looking to shift towards sustainable investing, then the concept of greenwashing can be off-putting.

The Government’s Roadmap to Sustainable Investment (which was released in October last year) includes guidance for companies on how to avoid greenwashing, as well as outlining the UK Green Taxonomy which sets out to define what is considered to be sustainable activity.

The Competition and Markets Authority (CMA) has also released the Green Claims Code to help businesses understand how their environmental claims may be obligated to comply with consumer protection law.

There are some simple steps that can be taken to ensure that your investment is going where you think it is:

  • Check the portfolios of the company you wish to invest in
  • If some of the wording is unclear, ask for examples and evidence of how they achieve this
  • Consult the Government’s roadmap to define sustainable activity

If you require support with related matters, contact our experts today.

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