What is Greenwashing?
By Su Fey Ng ‘25
I first heard of the term ‘greenwashing’ while interning at an eCommerce start-up over my gap year. This was in the context of the fashion industry, referring to how retailers advertise their products to be more eco-friendly than they actually are. The rise of greenwashing follows a shift in consumer mindsets where anything linked to sustainability is perceived as being of more value, resulting in customers being willing to pay a premium for clothing that is marketed as such.
Since then, I noticed, both in hindsight and in the present, a prevalence of greenwashing in virtually all industries, which is not surprising. Though sustainability should be more than a trend, there is no denying that it is one, and trends are opportunities for companies to capitalize on. This phenomenon has been in my thoughts as I venture into a new interest, exploring the realm of impact investing. Finance is far from the most sustainable field; profit motives are very often in conflict with ethical standards. U.S. Bank describes greenwashing in impact investing as using ‘manipulation and misinformation to garner consumer confidence around a company’s environmental, social or governance (ESG) claims’.
So, how does one determine if a company is truly ‘green’, or is merely greenwashing? The same U.S. Bank article referenced above provides a comprehensive list of tells based on a company’s marketing practices. In addition to that, investors can delve into sustainability reports and ESG ratings as part of the evaluation process, though it is important to remember that they each come with drawbacks.
A sustainability report contains information about a company’s ‘environmental and social performance’. It is usually published on an annual basis by the company itself, which can lead to questions about reliability, as seen in a report by Mckinsey & Company which states that ‘investors say they cannot readily use companies’ sustainability disclosures to inform investment decisions and advice accurately’. On the other hand, ESG ratings are produced by third-party organizations and are intended to provide investors with the means of ranking companies by their performance. MCSI describes its ratings as ‘designed to measure a company’s resilience to long-term, industry material environmental, social and governance (ESG) risks. However, the lack of consistency across ESG rating providers can lead to discrepancies in how companies perform on different ESG rankings. In addition, both sustainability reports and ESG ratings only reflect data and business practices that are known to the public.
Given all of the above, greenwashing is a massive obstacle that investors and individual consumers alike have to overcome. On a more personal level, I even find myself suspicious of companies that explicitly tout sustainability, which is not ideal, as actually ‘green’ companies would likely do the same to discern themselves. This skepticism should not be a deterrent to supporting sustainable companies, but rather an incentive to continue to look deeper. Although it can be tempting to forgo the tedious process of evaluating companies, especially when the available information is so confusing, it is important to recognize that while our assessments may be limited, the act of carrying them out holds companies accountable to certain standards, especially as investors and consumers become more aware of greenwashing practices.