How Investors Can (or Can’t) Spot ‘Greenwashing’

How can you tell if that laundry detergent’s green bottle is a sign that its maker is serious about being environmentally friendly -- or just serious about wanting you to think it is? Imagine confronting that problem if you’re a banker arranging a billion-dollar portfolio for investors who only want to buy projects with a specific environmental, social or governance, or ESG, purpose. That’s why as ESG investing has grown, so have concerns about “greenwashing,” the practice of putting spin over substance.

Greenwashing is as old as sustainability. It happens when companies use misleading labels or advertising to create an image of environmental responsibility without actually becoming more responsible -- think “all natural” meat that comes from factory farms, or oil companies that tout minor renewable projects to bolster their reputation while directing most of their capital spending toward extracting fossil fuels.