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Posted on Oct 25th, 2021

Greenwashing 101: Evaluating ESG Investments


Claire Vaughan

Product Analyst

Whenever the topic of ESG comes up, it doesn’t take long until the concept of greenwashing is mentioned. In fact, research suggests that it’s something that 44% of investors are concerned about1 – but what exactly is greenwashing? This article will break down everything you need to know about greenwashing, including how you can spot it, how to protect your investments from it, and whether there is a silver lining to the practice.

What Is Greenwashing?

Greenwashing is any false or exaggerated environmental policy or project that has no meaningful impact beyond providing the company with positive publicity or perhaps improvements to the bottom line.  Put simply, greenwashed investments are marketed as sustainable investments, but are essentially just window dressing.

Touting products or services as environmentally friendly when they aren’t (or at least, not really) is an issue that persists well beyond asset management, as it’s a tactic employed across industries from consumer products to industrial manufacturing. Organizations that make these false environmental claims profit from duping customers who believe they are making an earth-friendly or socially responsible choice.

Companies typically engage in greenwashing as consumer preferences shift increasingly towards being more environmentally conscious. A key driver is the fact that 66% of global consumers are willing to pay more for environmentally sustainable products, and among millennials, that number jumps to 72% 2. Greenwashing also helps firms generate a positive public perception, which provides a competitive advantage over peers that are (or at least appear to be) less green.

Types of Greenwashing

Companies rarely engage in bold-faced lies about environmental impact. Instead, most are guilty of less obvious forms of greenwashing, such as reporting environmentally friendly behaviors in a way that cannot be verified or using green labels that seem objective but are in fact unauthorized.

To better encompass these subtle tactics, the definition of greenwashing has evolved to include six commonly employed offences, referred to as the “six sins of greenwashing”3 that companies use to appear greener.

  1. Hidden Trade-Offs – Suggesting a product is “green” based on a single environmental attribute or an unreasonably narrow set of attributes without attention to other important, perhaps more important, environmental impacts.

  2. No Proof – Claiming environmental benefits that cannot be substantiated by easily accessible supporting information, or by a reliable third-party certification.

  3. Vagueness – Making claims that are poorly defined or broad such that the real meaning is likely to be misunderstood by the consumer.

  4. Irrelevance – Making environmental claims that may be truthful but are unimportant and unhelpful for consumers seeking environmentally preferable products.

  5. Lesser of Two Evils – Making “green” claims that may be true within the product category but distract the consumer from the greater environmental impacts of the category as a whole.

  6. Fibbing – Making environmental claims that are simply false.

How Common Is Greenwashing?

In an effort to describe, understand, and quantify the growth of greenwashing, TerraChoice Environmental Marketing Inc. conducted a survey of 1,000 products that boasted environmental claims. Of the products examined, all but one practiced greenwashing in some form or another.

Sins Commited by Category

Does Greenwashing Have a Silver Lining?

There have been some instances where critics of greenwashing take pause. For example, in 2008, after years of down spiraling sales, FIJI Water launched a “carbon negative” PR campaign claiming that it was the first bottled water company to reduce the carbon footprint of its products. It claimed to do this by reducing packaging by 20%, using renewable energy in plants, supporting recycling initiatives, reforestation efforts, and more4.

For FIJI, the objective of this campaign was ultimately to increase sales by counteracting the perception that bottled water was objectively bad. Critics of this campaign argued that it was a form of greenwashing because bottled water is inherently bad for the environment (e.g., one litre bottle of FIJI water emits 1.2 pounds of unnecessary greenhouse gasses) and FIJI’s small steps to reduce its carbon footprint were a clear example of the sins of hidden trade-offs and the lesser of two evils.

Others, however, argue that while these claims met the technical definition of greenwashing as the end goal was to improve FIJI’s bottom line and brand image, the campaign also provided benefits that otherwise wouldn’t have been realized.

So, can greenwashing have a silver lining? On one hand, the world does benefit from awareness and action. The net impact of FIJI planting trees and reducing packaging does better the planet. Moreover, if greenwashing by the lesser-of-two evils strategy can create competitive pressure within an industry to legitimately reduce environmental impact, that can absolutely be a step in the right direction.

Perhaps it is ultimately about perception and preference. Is a company attempting to deceive through so-called green initiatives? Can marginal improvements count as “green?” Does the consumer who has decided to buy a bottle of water benefit from having information to determine which brand has made efforts to reduce the environmental impact of that purchase?

At Purpose, we tend to believe that marginal improvements matter, but transparency is key. Opting for the lesser of two evils as a consumer or an investor has benefits that add up. If enough people do it, it affects profitability and cost of capital, meaningfully supporting businesses that are innovating to reduce impact.

Greenwashing Investments

The responsible investing (RI) space that encompasses ESG investing, impact investing, and sustainable investing has exploded over the last few years. This growth has spurred an influx of asset managers that make environmentally motivated claims about products – some true and some not. Managers who do so can reap the benefits of charging higher fees for ESG funds and attracting a growing group of socially conscious investors. Within the RI space, greenwashing can be particularly hard to identify and requires significant due diligence to detect in the absence of a formal process for regulators to moderate the space.

Some ESG funds have been caught “fibbing;” however, greenwashing is typically done in more subtle ways. Most commonly we’ve seen “ESG” funds engage in the sins of hidden trade-offs, lesser of two evils, vagueness, and no proof. Outright misrepresentation is clearly an offence, but investors may react to other tactics with varying degrees of sensitivity.

The sin of vagueness in particular is something that investors should look out for. Because there is no industry-wide-guiding ESG body or regulator, it is easy for asset managers to take advantage of flexible definitions to create and market ESG funds. We expect this will change in time. In the interim, we reiterate the belief that transparency around motives and methods is key.

Furthermore, with all the different types of RI funds out there it can be challenging for investors to identify what is greenwashing versus what is acceptable within that fund’s mandate. For example, a fund that claims to incorporate ESG while making investments in oil and gas is not necessarily greenwashing.

Funds may invest in the energy sector through an ESG lens, seeking out companies that perform necessary economic functions while innovating to be leaders in emissions abatement. They may also use proxy engagement in an attempt to engage and make meaningful changes in traditional energy companies from within. In this scenario, we believe the key determinant of greenwashing is whether the fund communicates its strategy clearly up front. As an investor, you should not encounter gross surprises when looking at a fund’s holdings against its stated strategy or ESG methodology. For us, this is the bottom line.

Our Approach

At Purpose, we want to be clear in explaining that our ESG methodology rests on the academic perspective that more sustainable companies perform better over the long run. Our primary motivation is delivering superior performance for our investors.

We do not leverage exclusionary screening to disqualify certain industries or sectors where ESG controversy may exist; however, these companies are less likely to be included in our funds because we take the approach of ESG integration. When/if they are, exposure will be tilted toward the best actors as defined by an ESG lens. We believe we can make a difference in selecting the lesser of two evils, and that our clients will benefit from superior performance when we do.

From a thematic perspective, we also believe that investing in the fight against climate change should span the transition to carbon neutrality rather than investing only in pure-green businesses. This means we will allocate heavily to clean energy, but also to traditional energy producers that are adopting technologies to neutralize impact to the greatest extent possible, or car companies that produce internal-combustion-engine vehicles but are positioned to be among the leaders into an electric-vehicle future.

We absolutely incorporate ESG, but we recognize our approach to integration will not suit every investor. The key is that investors can easily access the appropriate information to make an informed decision.

— Claire Vaughan is a Product Analyst at Purpose Investments


  1. “Greenwashing is 'biggest concern' for 44% of ESG investors,” International Investment, May 2021:
  2. “The troubling evolution of corporate greenwashing,” The Guardian, August 2016:
  3. “The ‘Six Sins of Greenwashing’ A Study of Environmental Claims in North American Consumer Markets,” TerraChoice Environmental Marketing Inc., November 2007:
  4. Gino, Francesca, Michael W. Toffel, and Stephanie van Sice. "FIJI Water: Carbon Negative?" Harvard Business School Case 611-049, June 2011, (Revised December 2013):

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