What is greenwashing? And how to avoid it.

Greenwashing is a marketing strategy that allows companies to cash in on the popularity of sustainability by making themselves appear more eco-friendly than they really are.

Greenwashing is a common tactic employed in many sectors, which results in customers and consumers mistakenly believing that they are investing in a company, retailer or experience that cares about nature and the sustainability of their business practices.

Some financial and investment companies offer investment packages that are falsely advertised as ‘sustainable.’ But, instead of offering any real commitment to tackling climate change, the investments are greenwashed in order to make the investment look eco-friendly, whilst in reality offering no discernible benefits to the environment.

More and more investors are looking to invest in sustainable funds. So, it has never been more important to offer attractive and properly sustainable investment options. However, what do you need to consider when it comes to sustainability? Continue reading to find out our top five tips on avoiding greenwashing when offering or choosing investments.

1. Check what industries a fund supports

Even though there are no set regulations to decide what constitutes sustainability, there are still several ways to determine the potential sustainability of investment funds. One way to determine whether any given investment is sustainable is by quickly checking the types of industries included/excluded in a fund. For example, some funds explicitly exclude some industries like tobacco, weapons or fossil fuels.

2. Invest in funds that specialise in sustainable sectors

An easy way to see if a particular investment option is properly sustainable is to invest in funds that exclusively operate in the sustainability sector. Such funds are enmeshed in the green economy and often support businesses working on renewable energy resources, e.g., solar, tidal, geothermal.

3. Do your research about the company

ESG investing (taking into account environmental, social and governance policies) can be difficult, but some quick googling of a company combined with the term ESG can provide quick results about whether a company is suitably sustainable.

4. Consider carbon emissions

Investing in a typical index fund may seem like a pretty safe bet, but if you are looking for sustainable investment, then perhaps something like the BlackRock U.S. Carbon Transition Readiness ETF (LCTU) fund would be more up your street. BlackRock claims to offer a fund that is at least 50% less carbon intense than the Russell 1000 fund.

5. Utilise investment search engines

Some websites such as Morningstar can help narrow down potential sustainable funds as they offer ESG screeners, as well as provide a sustainability rating for funds and stocks. You can use websites like this to search for your preferred type of fund, e.g., low carbon.

With the rise of sustainable investing, it is more important than ever to be on the lookout for potential greenwashing. By making use of the above tips, you can be assured that choosing a genuinely sustainable investment will be easier than ever before. Making your investment portfolio more green may not singlehandedly stop the ongoing climate crisis but choosing meaningfully sustainable investments will get us one step closer to protecting the world against further environmental degradation.

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