What What What

What is Greenwashing

Education 3 minutes to read

Saxo Group

Consumer goods 

It seems like every product we buy has some sort of label on the package designed to make us feel better about our purchase. We see “100% natural”, “made from recycled materials” and “ecofriendly” along with certifications like, “EPA Safer Choice” and “Dolphin Safe”. Unfortunately, these labels are often unregulated, when means there’s isn’t a standard that must be met in order for a company to use a label. In many cases these labels are nothing more than marketing gimmicks that don’t actually describe anything about the product. Companies spend more time and energy promoting ecofriendly products than actually making products ecofriendly. They also push alternative products and packaging that are actually less ecofriendly than traditional products and packaging. This is called greenwashing.  

ESG popularity 

Individuals, governments and societies want corporations to behave in more ethical and sustainable ways. The rise in popularity of sustainable investing products shows that many investors feel the same way. In 2021 there were record global fund flows into ESG investing products. The majority of fund flows came from Europe, where ESG investing is the most popular, but other regions, including the US, have also seen record fund flows. 

Chasing money 

Professional asset manager and wealth managers are paid based on how much money they manage. For example, a manager might be paid 0.5% annually for the investments they manage. This comes out to $5000 per $1,000,000 in assets managed. It’s common for investors to periodically withdraw money from their investments, which means managers are always looking for ways to attract more money. If investors are pouring money into ESG and other sustainable investments, professional money managers are certainly scrambling to meet this demand.  

Naming regulations 

Most countries have naming rules and regulations for investment products. When it comes to investment strategies like “growth”, “value” and “income” investing, there aren’t investment product naming rules or regulations. On the other hand, investment types like “stocks”, “bonds” and “Real Estate” investing are subject to naming rules and regulations. The 80/20 rule, which mandates a minimum of 80% of the assets under management by value be of the stated investment type, is common. A product called the “Large-Cap Growth Stock Fund” would have to invest at least 80% of the assets by value in stocks. However, there isn’t a requirement that these assets be either large-cap or growth stocks. 

Investment greenwashing 

Legally speaking, ESG and sustainable investing haven’t been classified as investment types. This means investment companies are free to use these terms in product names regardless of whether or not the underlying assets meet the ESG or sustainable preferences of investors. In fact, there are a lot of investment products on the market with terms like ESG in the name that don’t engage in any sort of ESG investing. A common practice is to rename existing products without making any changes to the investment process. The “Large-Cap Growth Stock Fund” becomes the “Super Duper Sustainable ESG Stock Fund”, but it’s still the same old stock fund that has never even considered ESG factors in the investment process. This is investment greenwashing. 
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.