Despite the growing popularity of ESG investment funds, ‘green’ investments are not always as environmentally-friendly as they appear.

In order to address this issue, often known as greenwashing, the US Securities and Exchange Commission (SEC) introduced new rules in 2023 to prevent misleading or deceptive investment fund names. This amendment to the Investment Company Act “Names Rule” stipulates that 80% of a sustainable fund’s portfolio must match the asset advertised by its name. 
 
It sounds obvious doesn’t it? But it hasn’t always been the case. In fact, for years, many ESG funds have been padded with investments that aren’t green at all in an effort to offset low-return investments and provide optimal returns for investors. Now, these new amendments demand more transparency in fund names, as well as additional reporting and disclosure requirements, in an effort to halt this deceptive behavior.

In this article, we’ll take a closer look at greenwashing, how the SEC is cracking down on greenwashing companies, and review the key steps your organization can take to avoid greenwashing and improve accountability. 

why is greenwashing hard to combat? 

The main challenge around greenwashing is that, to date, there has been no one single definition or means of measuring it.

That means greenwashing can look different based on the product or service in question, the industry it is serving, or the values of the person making the claim. In an article from Harvard, for example, the authors state bluntly: “one person’s treasured sustainability claim can be another person’s greenwashing trash”.

Moreover, accusations of greenwashing have, so far, been relatively easy for companies to skirt around. Without requirements to disclose numbers, science, or the full story, it’s been easy for businesses to overstate, exaggerate or be non-specific about their environmental impact in favor of their bottom line.

Recent developments by various bodies, however, including the SEC, mean greenwashing is coming with increased regulatory, reputational and litigation risks.

Every day, more companies are being called out for greenwashing, and it’s easy to Google lists of accused offenders compiled by environmental watchdog organizations. This signals that consumers – and investors – are becoming more savvy to deceptive practices and many want change. 

moving forward: how to avoid greenwashing at your organization 

The SEC isn’t the only player posing a legal risk for investment funds involved in greenwashing. State-level legislation is also being passed to combat ESG misinformation and globally, there is an increased requirement for ESG reporting through frameworks such as the EU’s Corporate Sustainability Reporting Directive. Finally, environmental activists are increasingly bringing alleged bad actors to the public’s attention, creating difficulties for those involved.  

The takeaway? Greenwashing is risky business. Luckily there are several steps your organization can take to avoid greenwashing and increase accountability as follows: 

1. commit to transparency 

When it comes to avoiding greenwashing, a true commitment to transparency is the first step. Don’t disseminate vague, non-specific claims that leave people with more questions than answers. Instead, share concrete claims openly and honestly and make sure your information is backed up with verifiable evidence, data and metrics. 

Additionally, don’t just share your wins. Being transparent about both your achievements and shortcomings is what builds trust. If you didn’t meet a target, be honest about it, take ownership and show how you’re working to achieve it. 

To support your efforts, consider creating a scorecard, dashboard or even microsites – like the ones offered by the AMCS Sustainability Platform – to keep your progress front and center, and enable your company to share important information with stakeholders. 

Transparency equals trust, and trust builds loyal customers. Though greenwashing might be tempting for short-term wins, it’s long term loyalty and brand equity that move the dial. 

2. collect auditable, investor-grade data 

It’s easy to make statements like, “we’re committed to protecting our rivers and oceans for generations to come” or “we stand for climate action, now”. However, most consumers are waking up to the fact that those sorts of statements are often indications of greenwashing. 

Instead of making marketing-speak claims, set a few realistic KPIs and work towards them. Collect auditable, investor-grade data about them. Start with KPIs that you know you can track, and make sure your data is rock-solid. Don’t try to tackle too much at once, or your data might be too thin. 

With a tool like the AMCS Sustainability Platform, you can manage your data easily by centralizing data collection, calculations and analytics. You can even automate reporting and track your progress along your whole supply chain. 

3. be consistent 

When a product rebrands their packaging to use green tones, add natural images or include logos of unverified certification programs, it can be an indication of greenwashing. 

It’s easy to change up your branding, put out ads about how green you are, and share a news story or two about a donation you made. But, it’s much harder to do the real work, and share your efforts on a consistent, year-over-year basis. 

A true commitment to ESG isn’t a one and done exercise. It can’t be accomplished in a quarter. And it certainly won’t come about through a packaging design change. The better approach is to put the work in, track your progress over months and years, and share this honest and verifiable information with your stakeholders on a regular basis. 

With steady, consistent progress, the market will notice your efforts and you’ll build credibility and trust that adds lasting value to your organization.