Updated: Dec 12, 2022
You’ve probably seen the phrases ‘green’, ‘eco’ and ‘sustainable’ splashed across products offered by financial service brands. We all know how urgently we need to act to lower global emissions and switch to renewable energy sources to combat and mitigate climate change.
However, greenwashing in financial services can make it tricky to ensure we’re picking products and brands that invest responsibly and ethically. That’s why we need to dig below the surface and interrogate where we put our money and whether it’s being used with social and environmental responsibility in mind.
We've prepared this guide for spotting greenwashing in the financial services industry to help you look beyond the slogans and pick up any overstated claims.
Ready to put your hard-earned money into genuinely ethical banks and funds? Let’s reveal the red flags to watch out for and what questions you need to ask to make an informed decision.
What is greenwashing?
In a nutshell, greenwashing involves making misleading or unsubstantiated claims about a product’s social and environmental impact. Specifically, we’re talking about banks, super and investment funds that overstate how sustainable, ethical or environmentally friendly their products and practices are.
It’s something many of us are wary of, with a recent report revealing 72% of Australians are worried their financial providers are engaged in greenwashing.
Greenwashing can show up in various ways, from a lack of information about how a fund measures its environmental impact to murky definitions of what ‘sustainable’ or ‘ethical’ investments mean. Even the names of products or funds can mislead us to think we’re picking ‘eco-conscious’ or ‘green’ investing options.
But why would a business engage in greenwashing? A big driver is this: consumers are more likely to choose companies and brands that position themselves as ethical and sustainable.
Plus, there isn’t a single standard or set of criteria used in the Australian financial services industry to measure whether a product is truly sustainable or climate-friendly. This can make it difficult to accurately compare products and assess whether they’re living up to their environmental, social and corporate governance (ESG) claims.
Why is greenwashing a problem?
We’re at a critical point in the global climate crisis. Many of us are looking for ways to make more sustainable, responsible choices, including where we invest and spend our money.
That’s what makes greenwashing in financial services such a serious concern: it can cause us to unknowingly put our money into polluting industries and fund companies that are causing more harm than good.
Take this example from the US: in 2019, the Wall Street Journal revealed that eight out of the ten biggest ‘sustainable’ funds in the US were actually investing in oil companies and fossil fuel projects.
Overseas, we’ve seen the European Union introduce new legal frameworks that help to create a single standard of what is a ‘sustainable investment’ (giving clarity and confidence to investors about where their money is going).
Without standard definitions of what is a ‘sustainable’ or ‘ethical’ investment or product in Australia, financial service businesses may be able to continue misleading consumers (like us) through practices like greenwashing.
What financial services brands are the worst offenders for greenwashing?
Unfortunately, there are plenty of examples of brands engaging in greenwashing in financial services, including:
DekaBank: This German bank has narrowly avoided legal action after it removed an “impact calculator” from its website that was found to mislead the positive impacts of investing in their fund by basing these calculations on estimates, not actual evidence (and omitting some companies included in the fund).
HSBC: Europe’s largest bank HSBC has been suspected of continuing to invest in coal projects, despite pledging to go carbon neutral. According to the Rainforest Action Network, this would make the company Europe’s second-largest financier of fossil fuels.
JPMorgan Chase: in 2020, this global investment bank announced it was committed to countering the climate crisis. However, months later, when their plans to take action were released, it was revealed they would only be encouraging oil companies to focus on their “carbon intensity” (essentially allowing them to keep investing in polluting industries).
Vanguard’s Ethically Conscious ETF: think all ethical ETFs are created equal? Think again. While this product has ‘ethically conscious’ in the name, a quick look into its portfolio reveals its investment in a number of damaging industries (such as gambling) and companies such as Nestlé (responsible for over 1,000 cases of deforestation per day).
Tips and tricks for spotting greenwashing in financial services
The good news is that uncovering greenwashing tactics is easier than you might think. Whether you’re thinking about switching super funds, comparing ethical banks or scouting out ethical investment options, it’s important to look beyond the ads and marketing slogans to check if it's truly an ethical and sustainable choice.
In broad terms, a few common red flags to look out for include:
High-level statements or vague definitions: be cautious of marketing messages that seem too lofty or ‘good to be true’ and always look for transparent data that backs up any ethical or sustainable claims made.
Buzzwords and ‘eco’ language: be wary of terms like ‘eco’, ‘earth-friendly’ and ‘conscious’ in the naming of products and always look for proof and facts that show what makes this bank, super fund or investment product a responsible choice.
Seals, labels and award claims: avoid taking ‘eco awards’ and certifications at face value and be sure to cross-check the validity of any statements that claim this product is ‘the best environment choice’ or an ‘award-winning’ fund.
Plus, there are practical steps you can take to do your own research and make empowered choices about where you invest your money.
Here are some tangible tips and tricks to safeguard yourself against greenwashing in financial services:
Review the product’s investment strategy: each fund will have its own strategy and set of criteria when choosing which companies to include in their products. So, head to the fund’s website or product disclosure statement (PDS) to find out how rigorous their screening process is, what values guide their decision-making and whether they don’t just omit polluting companies but actively invest in positive industries (like renewable energy).
Look into the provider’s reporting on their sustainability and ethical commitments: transparency is key to making an informed decision. Good funds and banks will be open about their progress towards sustainable or ethical commitments. These reports should be easy to find and access on the fund’s website or by contacting their customer service team. If you’re struggling to access this information or can’t see a clear list of the companies they invest in, it’s worth looking for a more transparent, ethical fund.
Check if the fund has been certified by a reliable third party: in Australia, ethical super funds, banks and investment products are reviewed and certified by the Responsible Investment Association Australasia (RIAA). They’ve launched Responsible Returns, a free online portal to help investors search and filter products and funds based on their values and ethical standards.
Look into the product’s holdings: it’s important to do your own research and find out exactly what industries and companies are included in any financial product you’re considering. All public companies that are listed on the ASX (Australian Stock Exchange), need to deliver annual reports to investors about their performance. So, jump on their website, download this report or dive into the product’s portfolio of companies and take a look at what industries or businesses are included.
We’re passionate about working towards a Net-Zero carbon economy here at Bloom. It’s why we’re proud to offer radical transparency over not just the companies you’re investing in, by the impact of your investment progress over time. It’s also why we share impact stories from your portfolio each week to see the good work your money is creating in the world.
You can make an impact!
Do you want your money to work for not against nature? Then download the Bloom app and start using your investments to fight climate change.
Don't forget, you can also join the Bloom community if you want to learn more about sustainable investing We have an upcoming array of events where you can learn how to make a positive impact on your finances.
This blog post has been prepared by Bloom Impact Investing to provide readers with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. We do not express any view about the accuracy or completeness of the information that is not prepared by us and no liability is accepted for any errors it may contain. The information contained in this blog is of a general nature only, does not take into account your objectives, financial situation, or needs, and is not to be taken into account as containing any personal investment advice or recommendation. No warranty is provided as to the accuracy, reliability, and completeness of the information in this publication and you rely on this information at your own risk. Any past performance information in the publication is not a reliable indicator of future performance.
The information on this website is prepared by Bloom Impact Investment Services Pty Ltd (ACN 651 965 098 AR 001294778), who is an authorised representative of Cache Investment Management Pty Ltd (ACN 624 306 430 AFSL 514 360) (Cache). Bloom’s financial products are issued by Melbourne Securities Corporation Limited (ACN 160 326 545 AFSL 428 289), as disclosed in the relevant PDS. All information provided in this article is general information only and does not take into account your personal circumstances, financial situation or needs. Before making a financial decision, you should read the relevant product disclosure statement and target market determination consider whether the product is right for you and whether you should obtain advice from a professional financial adviser.