How to Identify and Avoid Greenwashing Investments

Published by Fernando on

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The growing need for sustainability and the recent increase in sustainable investment options might have an undesired side effect – greenwashing investments. Some companies might take advantage of the ESG trend and try selling a greener version of their businesses to consumers and investors. Being able to identify and avoid greenwashing investments is crucial for a sustainable investor.

Greenwashing as defined by Investopedia is:

“…the process of conveying a false impression or providing misleading information about how a company’s products are more environmentally sound. Greenwashing is considered an unsubstantiated claim to deceive consumers into believing that a company’s products are environmentally friendly.”

The term was first introduced by environmentalist Jay Westerveld in 1986 while writing his term paper about multiculturalism. He defined the concept of “greenwash” three years earlier, in 1983, when traveling in Fiji. He noticed that the Beachcomber Resort was asking its guests to reuse their towels to reduce ecological impact. ‘Help us to help our environment’, they said.

The irony, however, is that at that same time the resort was expanding its footprint, building more bungalows, and consequently increasing its environmental impact on the island. It was clear to Westerveld that the  concerns of the resort were cost-related, not environmental or ecological.

how to identify and avoid greenwashing investments

Examples of greenwashing investments – The Seven Sins

Greenwashing can be practiced in many shapes and forms. It can be done without the full knowledge of the company or its employees, as a Corporate Social Responsibility (CSR) mistake. It can also be a deliberated and elaborated practice to mislead consumers, regulators, and investors.

The seven types of greenwashing investments sins are defined below:

Sin of the hidden trade-off: A claim suggesting that a product is green based on a narrow set of attributes without attention to other important environmental issues. Example: Fiji Water claiming that its plastic water bottles are carbon negative.

Sin of no proof: An environmental claim not substantiated by easily accessible supporting information or by a reliable third-party certification. Example: BP communicating net-zero ambitions without providing a clear roadmap to achieve it.

Sin of vagueness: A claim that is so poorly defined or broad that its real meaning is likely to be misunderstood by the consumer or investor. Example: not being straightforward about which emissions are not disclosed in company reports.

Sin of worshiping false labels: A product that, through either words or images, gives the impression of third-party endorsement where no such endorsement exists. Example: using unofficial certification as if they were issued by third parties.

Sin of irrelevance: An environmental claim that may be truthful but is unimportant or unhelpful for consumers seeking environmentally preferable products. Example: promoting recent company investments in renewable energy, when they represent a tiny fraction of the company’s total budget.

Sin of lesser of two evils: A claim that may be true within the product category but that risks distracting the consumer from the greater environmental impacts of the category as a whole. Example: fuel-efficient SUVs (sport-utility vehicles)

Sin of fibbing: Environmental claims that are simply false. Example: Volkswagen emissions scandal in 2015

Spotting greenwashing as a consumer vs. as an investor

There are essential differences from a consumer perspective vs. an investor perspective when identifying greenwashing.

Greenwashing is more easily practiced by companies in the consumer goods sector. Small investments in marketing and product labeling are sufficient to mislead end-consumers when they are buying products and services. Consumers usually have less time to dedicate to each product they buy, making it more challenging to identify and avoid greenwashing.

On the other hand, investors are (or at least should be) less impulsive and should dedicate more time to select the company or fund they want to invest in. However, investors face a more challenging task since companies will go the extra mile by providing imprecise or misleading information to avoid losing shareholder value. The type of due diligence required from investors is more complex and more demanding.

For investors, on top of the existing challenges to evaluate a single company, there are additional complexities of financial products, which contain several holdings or asset classes.

Spotting greenwashing investments – individual stocks

When investing in individual stocks, investors should look for greenwashing signs in different parts of the company. Greenwashing can be spotted at the company communication and marketing efforts, or be more subtle, for example when the company reports its performance vaguely.

It is recommended to look for:

  • Excessive green marketing and public announcements that are “too good to be true”
  • Verify the company history of ‘say-do’
  • Be sure that certifications are done by official 3rd parties

If possible, also perform a quick company analysis:

  • How does the company compare to its industry peers? Are they the front runners in sustainability or just trying to catch up with competitors’ announcements?
  • Does the company have a Sustainability Report and ESG datasheet? How do they look now and how much of a change is required for the company to achieve its ambitions?
  • How much do the company’s future investments in sustainable projects represent of its overall capital expenditures? A significant share or only a fraction of the company’s annual budget?
  • Is there a clear roadmap with clear actions and budget allocation for the implementation of the changes announced? Or only wishes and promises?
  • Is the plan too far out in the future? Ambitions of more than 10 years (2040, 2050) can easily be postponed or deprioritized.
  • Are company emissions clearly disclosed for Scope 1, 2, and 3?

Another approach is to do a reverse analysis and quickly check how the company you are researching ranks in sustainability according to different sources:

If the company is performing poorly on those rankings, there is a high probability that they are promising more than what they can deliver.

The lists above are also a great resource for you to start creating your personalized list of companies to avoid.

Spotting greenwashing investments – exchange traded funds (ETFs)

When investing in investment funds, investors need to extend their due diligence and evaluate how the fund or ETF providers are packaging their financial products.

A few points to focus on:

  • Be aware of misleading fund titles (look behind the terms ESG, SRI, Impact) – read the fund prospect and its exclusions
  • Check the fund allocation percentage per industry to identify undesired industries
  • Perform in-depth holdings analysis (go beyond the top 10 holdings and cross-check with the individual company’s sustainability performance)

If you already know which companies to avoid, then you can use the ETF Stock Finder from There you can see which ETFs contain a specific stock.

An interesting example of misleading ETF title is FlexShares STOXX U.S. ESG Impact Index Fund (ESG). This ETF contains shares of Exxon Mobil Corporation which is on the top of the Carbon Majors Report list. Globally it is the company with the 5th highest accumulated GHG emissions between 1988-2015 (17,785 MtCO2e). Notice that XOM (Exxon Mobil) does not appear at the Top10 holdings of that ETF. However, by using the ETF Stock Finder we can see that it has an allocation of 1.49% on that ETF.

Another example is the iShares Global Clean Energy ETF (ICLN). According to iShares, this ETF has the following investment objectives:

i) Exposure to companies that produce energy from solar, wind, and other renewable sources,

ii) Targeted access to clean energy stocks from around the world, and

iii) Use to express a global sector view.

Despite its relatively high MSCI ESG Rating of ‘A’ and MSCI ESG Quality Score of 7.0, the ETF has an average carbon intensity of 239.9 tons CO2e/USD million in sales, which can be considered high for a ‘clean’ ETF. A quick look at the sector breakdown reveals that it has 2.85% allocated to the Oil & Gas industry. For an AUM of USD 1.1 billion, this represents USD 31.4 million allocated to fossil fuel assets.

The Price of Greenwashing

Greenwashing is not only unethical; it also adds risk to investors. Companies that practice greenwashing are subject to lawsuits, reputational and brand damage, and potential reduction of their share prices.

Below we illustrate two classic examples of large well-known corporations engaging in greenwashing: Volkswagen Group and British Petroleum (BP)

The Volkswagen Case

Back in the 2010s, Volkswagen was investing in green innovation with its Think Blue program and producing hybrid cars. It was winning several green prizes, including The Green Car of the Year Award from the US specialist magazine Green Car Journal, for the Volkswagen Jetta TDI and Audi A3 TDI models in 2009 and 2010. In 2014, it presented its hydrogen fuel-cell concept in LA Autoshow –  the Golf SportWagen HyMotion.

Then came 2015, the year when the Volkswagen diesel emissions scandal took place. In September 2015, the Environmental Protection Agency (EPA) found that Volkswagen was selling diesel cars in the United States with a “defeat device”. The ingenious software was able to detect when the cars were being tested and would change the performance to improve the results. In real driving conditions, the engines were emitting nitrogen oxide pollutants 40 times above the U.S. limit. Later, Volkswagen admitted that the “defeat device” had been installed in 11 million cars worldwide, of which 8 million were in Europe and around 500,000 in the United States.

As a consequence to the scandal, Volkswagen Group had to deal with huge reputational damage, loss of trust from its customers, and several changes in top management, including the resignation of its CEO of America, Michael Horn.

The scandal also affected the company’s profitability and share prices. The company had set aside USD 7 billion in 2015 to deal with the crisis, which impacted their Q3 2015 results, bringing their first quarterly loss in 15 years of EUR 2.5 billion and yearly Operating loss of EUR 4 billion. Share prices dropped by more than 30%, from EUR 162.40 to EUR 106.6 during the second half of September. The scandal resulted in a market capitalization drop of EUR 35 billion in 2015, only to be recovered in November 2017.

Statistic: Volkswagen's operating profit from FY 2006 to FY 2019 (in million euros) | Statista
Find more statistics at Statista
VOW3 share prices, variation between July 2016 and Jan 2018
VOW3 shares prices, from July 2016 to Jan 2018

As of 2019, Volkswagen Group had already paid EUR 30 billion in fines, compensation, and legal costs.

Nicknamed ‘dieselgate’, the scandal not only had direct consequences to the environment and Volkswagen investors but also impacted other carmakers in the industry and even effected the brand value of Germany as a country.

The British Petroleum Case

Another classic greenwashing example is BP. Different from Volkswagen’s tech greenwashing case, British Petroleum has a long history of misleading communication, unsubstantiated claims, excessive green marketing, opportunistic re-brandings, and controversial lobbying. We can sum up BP’s actions in three major events:

BP logo - from old fashion to greenwashing

Beyond Petroleum (2000): In July 2000, BP launched a large re-branding campaign, changing its shield-shaped logo into a beautiful yellow and green sunflower. The campaign was handled by Ogilvy & Mather Worldwide, a major advertising agency, and had the ambition of changing BP’s motto to Beyond Petroleum.

The primary goal of the campaign was to prevent emissions from further increases, keeping them below 1990 levels of 90.5 Mt CO2. The chief executive at the time explained:

”…going “beyond petroleum” would be achieved “not by abandoning oil and gas – but by improving the ways in which it is used and produced so that our business is aligned with the long-term needs of the world.”

Chief executive Lord John Browne

Right before the campaign, BP demonstrated how much it wanted to focus on the green side of their business. It acquired the oil-driller ARCO for USD 26.5 billion and made a tiny investment in the solar energy company Solarex, totaling USD 45 million (50% stake). By 2008 the company was still investing 93% of its CAPEX into the Oil & Gas business, leaving only 7% for combined investments in wind, solar, and biofuels. The campaign was perceived as a clear brand greenwashing and a PR stunt.

Deep Horizon (2010): Despite the Beyond Petroleum efforts, in 2010 the company faced a large drawback by causing one of the largest environmental disasters in human history. Deepwater Horizon, an oil-rig platform licensed by BP, exploded in the Gulf of Mexico, killing 11 workers. For 87 days the entire world watched 200 million gallons of oil from the well spewing into the ocean.

After the event, BP published its Sustainability Report, where it casually left the oil spill out when reporting amounts of oil, CO2, and methane released in 2010. The reason:

“Although there are several third-party estimates of the flow rate or total volume of oil spilled from the Deepwater Horizon incident, we believe that no accurate determination can be made or reported until further information is collected and the analysis, such as the condition of the blowout preventer, is completed.”

It was estimated that the cost of the 2010 Deepwater Horizon oil spill will reach USD 65 billion, including costs to cover criminal penalties, civil settlement, clean-up costs, and outstanding claims.

The environmental impact was devastating and damaged wetlands, beaches, sea life and seafloor. The oil and chemicals destroyed corals , disrupted the reproductive cycles of commercial and recreational fish and 8.3 billion oysters were killed.

Net Zero Ambitions (2020): Recently, BP’s new CEO, Bernard Looney, made an ambitious announcement, claiming that BP will cut emissions to achieve Net Zero by 2050. The announcement was accompanied by a halving of dividends to help offset Q2 2020 losses and a write-off of USD 17.7 billion due to the crash in oil prices.

Based on the events above, the Net Zero ambition (not a target), can be seen more as a reactive action than a proactive step towards a green ambition. However, there is more to it.

BP breaks down its ambition in five aims:

Net Zero Operations – Aim 1 is to be net zero across entire operations (Scope 1 and Scope 2) on an absolute basis by 2050 or sooner

Net Zero Oil and Gas – Aim 2 is to be net zero on an absolute basis across the carbon in upstream oil and gas production (part of Scope 3, excluding Rosneft) by 2050 or sooner

Halving Intensity – Aim 3 is to cut the carbon intensity of the products sold (part of Scope 3) by 50% by 2050 or sooner

Reducing Methane – Aim 4 is to install methane measurement at all existing major oil and gas processing sites by 2023, publish the data, and then drive a 50% reduction in methane intensity of operations

More $ for New Energies – Aim 5 is to increase the proportion of investment into non-oil and gas businesses

If we look closer at aims 1, 2, and 3, we can see that BP will mainly focus on cutting emissions from Scope 1 and 2 and partially address emissions on Scope 3. According to BP’s Annual Report 2019, Scope 3 mentioned at Aim 2 relates only to ‘use of sold products’ (category 11).

Grist has a nice article on the importance of emission Scope 3.

WorldOil goes deeper on BP’s Scope 3

Aim 3, which focuses on halving intensity of “products we sell” belongs to Scope 3 as well, as explained by Carbon Tracker. The issue here is that Scope 3 emissions, or emissions from the supply chain, represent 85-90% of the total emissions from Oil and Gas companies. Only 10-15% of emissions are accounted for Scopes 1 and 2. BP is leaving out of its Net Zero target the larger amount of their emissions.

Moreover, to complement the analysis, Aim 5 focuses on increasing investments in low carbon sources by 10-fold within 10 years. As a reference, in 2019, BP invested around USD 500 million in low carbon activities. This represents only 3% of the company’s total capital expenditure of $15bn-$16bn. Increasing it to 30% of annual CAPEX is a great ambition, however, considering BP’s greenwashing history, it is difficult to believe that now their green journey will be any different.

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It can be tricky for an untrained eye to identify and avoid greenwashing investments. Companies that pollute the environment or are low on social responsibility will do whatever is possible to sell consumers and investors a greener version of their businesses.

Ultimately, to identify and avoid greenwashing investments, investors need to be more attentive and dedicate extra time when making their investment decisions. It is necessary to go beyond the first impressions, and investigate subtle communication changes, flaws on sustainability reports and vague top management promises.

We, at Your Green Wealth, intend to bring more light into this topic and be sure that companies with a history of greenwashing are exposed and avoided by investors.

Not investment advice: The information provided on this website is intended for general information purposes only and does not constitute investment advice, financial advice, trading advice, or any other sort of advice. You should conduct your due diligence and, if necessary, consult a qualified independent financial advisor before making any investment decision.

Disclaimer: This website may use affiliate links. Keep in mind that we may receive commissions when you click our links and make purchases.

Categories: Basics


Fernando created Your Green Wealth to help investors find sustainable investing options. When not writing for Your Green Wealth, he is a business developer for renewable energy projects.


Ethical FIRE · April 2021 at 23:20

Fernando, I just discovered your website this evening – do you write this entirely yourself? It is a monumental achievement if you do! You clearly have both knowledge and passion for the subject which is rare; many have knowledge but are apathetic, many others are passionate but clueless.

I started with your article on Vanguard’s new ESG index trackers and, while I knew ESG trackers – if they mean anything at all – really only mean ‘not terrible’, when compared to things like impact investments, it was good to see information on these funds not produced by the company themselves.

I am sticking with Legal and General’s ESG Future World index trackers for now. I would love to see you analyse those! So far as I can tell, they employ both negative and positive screening e.g. weighting towards companies that score higher on ESG. They also claim to have a ‘climate impact pledge’ not investing in companies they (L&G) deem inconsistent with keeping the global average temperature increase to less than 2 degrees Celsius. (For what it’s worth, I also have several impact investments, with other providers, in both stocks and bonds.)

The one thing that I am looking for but cannot find is an ESG tracker that does not exclude so-called ‘vice’ products! I have no ethical problem with tobacco, alcohol, adult entertainment or gambling, and at least three of those seem like solid financial investments. I have never smoked, almost never drink, do not care for pornography, and my only gambling is my investments! I also support public health campaigns and am aware that smoking/drinking/gambling can be highly addictive and thus ruin lives. Nevertheless, personally, I would not wish to see any of them outlawed so, unless these industries (or particular companies within them) have major environmental impact or treat their employees/supply chains badly, I am happy to invest in them. Except I cannot, inside of an ESG vehicle! (I never pick individual stocks since that is too risky for me.)

Thanks again for your hard work on this website. I will be back!

    Fernando · April 2021 at 00:53

    Hi Ethical Fire. Thanks for the feedback. Yes, I have been doing everything myself here at Your Green Wealth.

    ESG investing has still a long way to go. I hope we will start seeing more ESG products that do more than only excluding the “very bad” companies.

    Thanks for mentioning the Legal & General ESG Future World Index. I have not done much research on L&G products, but will take a look.

    Regarding your questions about vice products, indeed it will be very difficult to find an ESG ETF that does not exclude those controversial businesses. This is the first action (and sometimes, the only one) taken by the ‘weak’ ESG ETFs.
    Vice industries do not have a good history on working rights or envrionmental impact.

    You could use tool Stock Finder to see which ETFs are holding specific stocks that you might be intereted. However, this might force you to buy one ETF, only to hold a desired stock.

    Have you considered buying individual stocks, but holding a small amount, proportional to your total ETF allocation?

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