Charlene Cranny explains why Greenwashing is so prevalent in investing and why the onus is on individuals to find this out, not the industry to uncover it.
One of our regular guest writers, Charlene Cranny, from Economy of Good speaks candidly about how companies are able to get away with talking the talk but not necessarily walking the walk.
This question is probably in the top 3 of questions asked by people wanting ethical investment and finance. Here is a quick run down of what the ‘eck is going on out there.
In a nutshell, greenwash is a problem in the finance and investment industry because there aren’t agreed standards, definitions or labels. That is, there are no basic rules to follow that dictate what is green and what isn’t.
No rules mean an investment fund called ‘Green Growth’ can legally invest just 10% of the pot in green activities, say solar power, while another fund might invest up to 90%. This makes it difficult for people to find truly green funds based on advertising alone.
Ideally, an industry regulator would set a standard to say that a fund must invest at least “X%” in green companies before it can call itself ‘green’. Something the Ecolabel for financial products is attempting to do in the EU. Though it still doesn’t go far enough.
The Ecolabel is still in development but they recently lowered the requirement for ‘green’ from 60% of a fund to just 40% in their plans. Why? Because the industry complained not enough funds are green enough to qualify for the label. Sigh. That is the point — the label should aim to raise standards, not support business as usual.
No one completely agrees on that either. But the EU has now created a ‘green taxonomy’, the world’s first-ever “green list” of environmentally sustainable activities. It will include things like renewable energy, fossil free transport, forestry and waste management.
Because we are no longer in the EU, the UK will have to create its own ‘green list’ which a group of experts started to work on in June 2021. Thankfully, we have the EU version as a head start.
So, long story short, until we have a ‘green list’ and proper labels, every investment provider or fund will have its own version of ‘green’. So it’s up to us to find out what those versions are.
Here are some ways to investigate (a host of which are included in The Big Exchange's impact assessments and available in each fund details screen):
It’s really boring and annoying having to investigate like this, I know. Go the extra mile because it matters to you not to support dirty, destructive industries.
But don’t feel guilty if you haven’t done everything on this list. You are reading this because you are a good person. It’s not your fault some parts of the industry have such low standards for our planet.
Please remember that when investing, making money is not guaranteed and your capital is at risk. The value of your fund can go down as well as up. Tax treatment depends on an individual’s circumstances and may be subject to change.
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