News and Analysis | Richard Ravelin | October 6, 2022

Greenwashing takes centre stage at Good Money Week – can you be sure of where your money’s invested?

This week is Good Money Week. It’s all about helping people make good money choices through their investments, pensions, and savings, with the environment at its heart. Thus, it’s about promoting a ‘green slate, clean slate’.

Because of the increasing interest in environmentally friendly money, one of the topics which is front and centre of this year’s Good Money Week is greenwashing.

Greenwashing is essentially a marketing ploy. It occurs when companies, groups, organisations, or individuals claim to be sustainable or eco-friendly, when the bulk of their work actually destroys the planet, such as those who continue investing in fossil fuels.

A closer look at ‘greenwashing’ this year focuses on hedge funds and private equity firms.

The Financial Conduct Authority (FCA) has made a big announcement as part of Good Money Week, telling people they will update them on the Sustainability Disclosure Requirements (SDR) and the investment labels regime by the end of October following a long period of delays.

This will help bring clarity to claims by hedge funds and private equity firms regarding ESG and whether or not their financial products are sustainable, helping consumers navigate what is, usually, quite a complicated arena.

But will the soon-to-be announced plans prove useful? Mark Manning, the FCA’s technical specialist, thinks it will. He says one of the points of the FCA’s process is to underpin the criteria for products that must be met before companies can use the term. For example, not only will people have to show what they’re achieving in terms of sustainability, they also need to show how they’re going to do so and their overall progress.

Additionally, the plans from the announcement will help to protect a growing and changing area of the market, while making sure those companies and groups are not ‘greenwashing’ and eroding consumer trust.

But David Macdonald, Path’s founder, says it’s difficult to invest in ESG because they are ‘just metrics by which funds can be judged’.

Writing in the FT Adviser, he said:

The definition can be very wide-ranging and measurement poor. Ironic for a ‘metric’ really, but there you go.

So, a blanket definition of ‘ESG’ in my opinion is useless. What you need to be thinking about is where exactly you need the companies in an ESG fund to be on each of the three metrics.

There is a spectrum from ‘not terrible’ through to ‘very good’ on all three.

One thing is clear: the rise of companies wanting to appear strong on ESG has fuelled greenwashing allegations.

But how do you spot a company who may be telling fibs when it comes to their eco-friendly products and services?

Firstly, make sure you do your research. Have a detailed look at the company you’re wanting to invest with; check their website, any flyers or pamphlets, and make sure you speak to a representative, if necessary. Go armed with questions to ask.

Secondly, try and find out if what’s been said by the company can be backed up. Have news stories been written about them in the trade press, for example, which explicitly denotes their sustainability credentials? Can you find any evidence for the claims elsewhere online or by speaking to the company directly? Check reviews and see what testimonials are used.

Thirdly, be prepared to switch afterwards. If it turns out the company you’ve gone with isn’t eco-friendly after all, you may want to change. It may be time-consuming to do so but could save you a headache further down the track when you find out more about the fossil fuels or ‘greenwashing’ tactics used by the firm.

Speaking at the Green Party conference, Macdonald said:

Many companies are guilty of misleading people by labelling their services and products as ‘ethical’ or ‘green’ as a marketing tactic.

Very few financial companies offer only ethical investments – they might have an offer which is a bit better for the planet, but the rest of the time they are busy investing other customers’ money where it is causing untold damage.

I would encourage investors to think about the impact that their money has on the wider world and look at whether their finances are really aligned with their own personal values.

You can be assured that using Path will mean your investments are only going into ethical and planet-preserving activities. None of your cash will be put into things which harm the environment. If you’re keen to get on the green ladder, get in touch with an adviser at Path today.