Key takeaways

  • When it comes to investing, greenwashing is the use of misinformation to gain investor confidence around a company’s ESG claims.

  • Greenwashing red flags include purposefully vague copy, award claims and scientific terms and buzzwords.

  • Experienced financial professionals can help safeguard against greenwashing, reviewing an investment’s benefits, significance and effort prior to recommending it to investors.  

If you’re a purpose-driven investor, you may already be engaged in impact investing

You’ve selected investments based on their positive environmental or social impact and the prospect of favorable returns. You’ve established a portfolio that mirrors your values. But how can you be sure that every company or fund in your investment portfolio is genuinely committed to a higher set of business standards? 

Could you be “greenwashed” and not know it? It’s possible. 

“Greenwashing shows up in the investment industry when a fund gets re-labeled as impact or when an investment manager repurposes it as impact.”

Chad Burlingame, director of Impact Investing at U.S. Bank

What is greenwashing?

In its basic form, greenwashing uses manipulation and misinformation to garner consumer confidence around a company’s environmental, social or governance (ESG) claims. According to Chad Burlingame, CFA, CAIA, director of Impact Investing at U.S. Bank, “Greenwashing is marketing hype that applies to companies overstating their ESG efforts. It also shows up in the investment industry when a fund gets re-labeled as impact or when an investment manager repurposes it as impact.”

Companies across the globe may misrepresent their green credentials to deceive investors and consumers for economic gain or public favor. Greenwashing can be disguised in many ways:

  • An organization states it’s “green conscious,” when, in reality, it has no concrete green initiatives
  • A business invests more advertising dollars on its environmentally friendly brands than it spends on positive green practices or sustainability programs
  • A company maintains effective waste-reduction programs during manufacturing, but its end-product is harmful to the environment


How to uncover greenwashing

You don’t have to be an investigative reporter to uncover questionable greenwashing practices. Look for red flags in marketing ads, on product labels or on a company’s website:1

  • Overused industry language. “Eco-friendly” or “all natural” – claimed by thousands of companies
  • Misleading graphic. Mountains, trees and streams on plastic bottles portray environmental compassion
  • Award claims. A brand states it’s the best environmental product in the industry without proof
  • Purposefully vague text. Poorly worded language that over hypes a product and is intended to mislead
  • Seals and labels. Text featuring “award-winning product” on a simulated environmental symbol
  • Scientific terms and buzzwords. 100% biodegradable or 100% compostable product claims


Seek investment help to avoid greenwashing

If you’re new to impact investing, you may be unsure where or how to begin. Or, if your portfolio is already focused on impact investments, you may want to re-evaluate it with a critical eye to greenwashing. In any case, consider working with a financial professional as your next step.

Burlingame acknowledges, “Impact investing and its terminology can be confusing to investors. Greenwashing is an additional challenge and creates a bad investor experience. Your financial professional is a first line of defense who provides transparency and guidance.”

Experienced financial professionals can serve as a safeguard against greenwashing. Ask them how they are incorporating ESG factors into their work practices. Listen for objectivity in their comments. As Burlingame asserts, “Questions should be asked of [your professional]. It allows them to highlight their corporate reputation and commitment to impact.”

ESG criteria include:

  • Environmental – factors such as climate change, energy efficiency, pollution, water scarcity or biodiversity
  • Social – factors such as human rights, gender and racial diversity
  • Governance – factors such as board composition, executive pay, audit committee, lobbying activities or political contributions

Furthermore, financial professionals review data and eliminate ambiguity in three critical investment areas when performing their due diligence:

  • Benefits – Does the investment generate non-financial ESG benefits in addition to a financial return?
  • Significance – How significant are ESG factors to the financial performance?
  • Effort – Do the results come from authentic ESG efforts or just chance?

As impact investing demands rise, the available data and reporting capabilities are growing, too. Burlingame reinforces the growth. “In the 1990s, 20 companies disclosed ESG data. Today, that number is over 9,000. The increase in data and ability to analyze it helps quantify the non-financial benefits. That allows financial professionals to go beyond screening out the bad or tilting toward the good, and instead direct capital to potential solutions.”


Investigate for greenwashing before investing

While the ESG investing landscape is comprised of many ethics-based businesses and investment managers, greenwashing remains a concern due to a lack of detailed regulatory oversight. Working with a trusted financial professional to evaluate the impact claims of any business or fund manager can be critical to your investment endeavor. It may also simply provide greater peace of mind.

Learn more about how we approach impact investing.

Impact investment funds are speculative and involve a high degree of risk. These investments involve a substantially more complicated set of investment strategies than traditional investments in stocks or bonds, including the risks of using derivatives, leverage and short sales, which can magnify potential losses or gains. There is no guarantee an investment in an impact investment fund will meet projected investment or income objectives. Always refer to a Fund’s most current offering documents for a more thorough discussion of risks and other specific characteristics associated with investing in impact investment funds.

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Learn how your personal values can be meaningfully incorporated into your investment strategy.

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Why is diversification important in investing? Because risk never disappears – even in times of economic growth.


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  1. Information adapted from Futerra’s 2015 Selling Sustainability Report. 

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U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.

The information provided represents the opinion of U.S. Bank and is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific investment advice and should not be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation.

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Environmental, Social and Governance (“ESG”) investment strategies limit the types and number of investment opportunities available and, as a result, ESG focused funds may underperform other funds that do not have an ESG focus. ESG investment strategies may result in the funds investing in securities or industry sectors that underperform the market as a whole or underperform other funds screened for ESG standards.