What is Greenwashing?

What is Greenwashing?

Joseph Darby

Funny Business with Ethical and Responsible Investing

In response to general confusion and an ever-expanding number of claims made by investment funds, both the NZ and Australian financial regulators have just released reports and guidance about ethical or responsible investing. The NZ regulator, the Financial Markets Authority, has suggested new disclosure rules will apply to those managing investment funds.

However, the NZ funds management industry hit straight back, suggesting this is a legal grey area, and have pointed out assorted issues including; varying and evolving international standards and methodologies, patchy data, new products, and observed that people everywhere are using the same words to mean different things. Against that backdrop, much of the NZ investment management industry has stated it’s not possible for any fund manager anywhere to make legally correct and verifiable statements about this aspect of complex financial products without providing pages upon pages of “technobabble and caveats”, or in other words, fine print. The point is that pages of fine print don’t help anyone, not least of all the investor.

But how did we get to this point?

What Is Greenwashing?

Greenwashing is giving a false impression or providing misleading information about the environmental status of a company or its products. These misleading or unsubstantiated claims deceive consumers into believing that a product or service is environmentally friendly or socially responsible. Although some of the environmental claims can be partly true, companies or organisations engaged in greenwashing typically exaggerate their claims or the benefits.

The term greenwashing reportedly originated in the 1960s when the hotel industry devised the now-common approach of placing notices in hotel rooms asking guests to reuse their towels to save the environment. The hotels enjoyed the benefit of lower laundry costs, though claimed it was for the good of planet earth.

More recently, some of the world's biggest carbon emitters, such as conventional energy companies, have attempted to rebrand themselves as champions of the environment. Products are greenwashed through a process of renaming, rebranding, or repackaging them. Greenwashed consumer products might convey the idea that they're more natural, wholesome, or free of chemicals than competing brands.

Sometimes, this can extend to claims made about investments too.

Beneath the Surface

When it comes to investing, various phrases and terminology are thrown about. You might hear investment labels such as responsible, sustainable, ethical, and environmental, social and governance (“ESG”), which can all be interpreted in different ways.

Some investment managers simply exclude whole parts of the economy, and so will not invest at all in companies or areas they consider to be “bad”.

Alternatively, other investment managers take a more sophisticated approach, and may invest selectively in “bad” companies or investment assets but will engage with the leadership of such companies to influence better overall outcomes.

Obviously, sorting the world into “good” and “bad” investments and companies is easier said than done.

It’s Tough To Be Green

Investing with ethics in mind is tough. Ethics is a grey area to begin with.

What might be totally ethical to one person could be considered totally unethical by another or be a grey area for a third person. When it comes to “should I or shouldn’t I?” investment decisions, basically all companies do something that someone somewhere might consider ‘bad’. For example, most of the largest NZX-listed companies are more ethical and sustainable than most corporates worldwide, but still find themselves criticised for reasons including:

Did You Know?

One of the worst-rated industries globally when it comes to ethics and sustainability often goes unnoticed. This field goes frequently overlooked by even the most ardent supporters of ethically conscious living and investing.

It is the fashion industry.


  • Raw materials for clothing are usually sourced in harsh third-world conditions.
  • Sweatshops churn out garments for very little benefit to workers or even slave labourers.
  • The International Labour Organisation estimates that 170 million children are engaged in child labour, with many making textiles and garments to satisfy the demand of consumers in Europe, the US, and beyond. Children are reportedly well-suited to work in sweatshops, as they have small and fast hands.
  • The production of synthetics has a range of environmental impacts, including polluting waterways, being energy intensive, and usually requiring a chemical reaction between compounds including coal and petroleum.
  • The Ellen Macarthur Foundation determined less than one percent of materials used to create clothing are recycled.
  • According to the World Bank, the fashion industry’s greenhouse gas emissions are more than all international shipping and flights combined.
  • Perhaps worst of all, over decades the fashion industry has carefully crafted the idea of fast fashion. Forget repairing clothing, it is no longer trendy to wear clothes from last season, and it might not even be fashionable to wear the same clothes on more than a select few occasions! Unfortunately, this results in harmful environmental impacts, possible further exploitation for garment workers, and it is rough on consumers’ wallets too.
  • According to McKinsey, almost three out of every five pieces of all clothing end up in incinerators or landfills within a year of being produced. Synthetic fibres won’t biodegrade either.

Sounds like an overseas problem? – not quite. A recent Tearfund study focused on Australasia found that most companies still couldn’t trace where their raw materials came from, and only 5% could show they paid a living wage to all employees through the supply chain. However, in a classic example of greenwashing, nearly every company examined scored A+ for their policies – it is just the policies weren’t being acted upon.

Of course, the fashion industry does help generate tax revenue, provides valuable skills and training, and delivers crucial foreign exchange to many countries. All these factors can, and often do, contribute to improving the lives of workers and their communities. There is a rising consumer focus on ethical fashion too.

The Bottom Line – What Is Greenwashing?

Investing responsibly might get a lot of media attention from time to time, but it isn’t getting any easier, especially when slick marketing departments put a greenwashed appearance on the operations of all major corporations.

To help wade through such marketing spin and invest with your own ethics in mind, plenty of time spent researching is the best thing you can do.

Even then, this is clearly an evolving area, which is attracting attention from investors, funds, and policymakers alike.

It’d be the pleasure of one of our trained professionals to help you work through anything above, or perhaps to review how green any of your investments are. Get in touch today.

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