What is greenwashing?

Funny business when it comes to ethical and responsible investing

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 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.

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.

This topic has been back in the headlines lately, after news broke that Air New Zealand (Air NZ) had been repairing a small number of engines for the Saudi Navy. Air NZ has plenty of mum and dad investors, but the largest investor is the NZ taxpayer, so the government soon started demanding answers on the matter from Air NZ leadership. The plot thickened when it transpired that it is unlikely Air NZ has broken any laws, and when it was unearthed that our Prime Minister’s own KiwiSaver Scheme investment has profited from more than a couple of companies heavily involved in Saudi military deals.

Beneath the surface

Scratching the surface of many large investment funds can turn up similar results. Consider another well-known KiwiSaver Scheme provider who proudly broadcasts their ethics, complete with advertising proclaiming “We invest with a conscience…” and then goes on to proudly declare how they don’t invest members funds into “…companies involved with fossil fuel exploration, drilling, and refining of oil and gas products.” However, a close look at their actual investments shows holdings in corporations that:

• Distribute and sell natural gas
• Sell petrol and fuels to consumers
• Hold thousands of kilometres-worth of gas pipelines
• Own multiple major coal power plants

In other words, they’ve decided to exclude only parts of the fossil-fuel supply chain.

It gets better. The same provider also touts their commitment to avoiding investing in areas such as nuclear energy. Yet the scheme invests in at least a dozen nuclear power plants.

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:

• Dairy farming,
• Gambling and alcohol,
• Directly or indirectly guzzling gas, and
• Even hydroelectric river dams have been criticised by sources as reputable as National Geographic for preventing wildlife moving up and downstream and destroying forests and bush.

Did you know?

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

• 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. This might include the underage.
• 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 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 ends up in incinerators or landfills within a year of being produced. Synthetic fibres won’t biodegrade either.
• The Ellen Macarthur Foundation found out that less than one percent of materials used to create clothing are recycled.

Sounds like an overseas problem? – not quite. A recent Tearfund study focussed 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.