Greenwashing: How Big Is The Problem And How To Fix It?

Tom Burroughes Group Editor 15 July 2022


How can data, analytics and technology help in this area? 
In theory, you can offset your yearly carbon footprint and be carbon neutral, however, in our partner Greenr’s experience, this is no longer enough on its own. If all individuals and companies continue to live an unsustainable BAU lifestyle and only offset all their emissions, we will soon run out of carbon offset projects. 

To avoid greenwashing claims, the key is reduction at source. To quote Greenr CEO, Dr Gabrielle Bourret-Sicotte, "the best tonne of offset you can purchase is one you have not emitted in the first place."

The first step on anyone’s sustainability journey should be to measure your emissions data. This can be done by calculating your organisation's scope 1, 2 and 3 emissions based on office bills and assumptions of employee commutes by using online Business Carbon Calculators such as Greenr’s ( Scope 3 emissions are notoriously hard to compile as they account for employee activity. Using green tech online apps is a convenient way to crowdsource and aggregate homeworkers' emissions, employees' commute and business travel emissions and communicate those to employees to help refine those all-important scope 2 and 3 emissions.  

Tracking and communicating this important data allows organisations to set reduction targets as well as gamified pledges and competitions to engage the entire workforce in sustainability initiatives. This captured data also encourages crucial reductions at source. This includes making proactive and informed decisions to reduce carbon emissions. By uniting organisations and employees, an organisation ensures that the sustainability mission is company-wide, companies can also benchmark themselves against their competitors and win new clients and consumers by having an impressive reduction agenda. 

In conversations with wealth managers from other firms, clients, and other players, how much of a concern do you think there is about greenwashing?
It has been a growing concern, escalating with scandals surrounding numerous greenwashing probes, for example Deutsche Bank’s fund arm DWS Group, and Goldman Sachs Asset Management most recently. Investors have been demanding more clarity on the nature of their ESG and “sustainable” investments, fund methodologies and credentials. Clients, as well as market insiders, are quick to admit that ESG remains very hard to define and, despite increasing regulatory efforts, it is still riddled with vague definitions, a lack of rules and, often, a lack of transparency. (Editor’s note: DWS has strongly denied wrongdoing.)

Regulators have been aware of the issues and multiple frameworks are being put in place, leading to better protection of individual investors. Also, given the recent outflows from ESG funds in Q1 2022 and the last couple of months, “greenwashing” may be one of the reasons why some of the ESG funds are scrutinised. Therefore, it is an issue which should be urgently addressed.

What advice should the end client have about the risks of greenwashing, tips to avoid problems, etc?
Given the broad definitions of “sustainability” and “ESG investing,” it’s extremely important for clients to decide and understand what “sustainability” means to them. Does it mean excluding certain sectors or companies altogether, or would they prefer that their fund managers adopt the “engagement” rather than exclusion route, whereby shareholders actively focus on influencing companies to improve their sustainability standards and drive long-term, sustainable returns. Then, understanding the fund’s investment strategy in detail to judge how well the underlying holdings match the fund ethos also helps. Additionally, the fund manager’s track record, transparency and openness to discussion can add another level of comfort when deciding who to trust your money with.

Have some of the faults been exposed by weaker markets, inflation, and economic volatility? Was there a risk that this issue was covered when markets were rising? 
Rising markets can, to some extent, make matters easier to hide and recent market volatility and poor returns may have certainly led to greater investor scrutiny. There is a growing trend of clients wanting to have a much closer look at what their managers are really doing, how they are managing risk and whether their marketing matches their actions, which frankly, is the right thing to do.

How can advisors and other professionals be trained to spot problems and handle them rapidly?
They can do this by educating themselves about the mistakes of others, being on top of the regulatory framework, understanding that companies sometimes hide behind the “correct” language, and making the distinction between green products versus dirty companies, for example, energy-efficient products made in polluting factories. These can all make navigating the space easier. Furthermore, not relying solely on third-party data and scores which can often be opaque and, instead, by focusing on analysis of raw data (which is becoming more and more widely available) and creating their own methodologies is often invaluable.

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