How do you spot and prevent greenwashing in venture capital?

1 Understand the impact framework

Before you invest in or partner with a venture that claims to have a positive impact on the environment or society, you need to understand how they measure and report their impact. What framework do they use to define and align their goals, indicators, and outcomes? How do they collect and verify their data? How do they communicate and disclose their impact to their stakeholders? A credible impact framework should be clear, consistent, and transparent, and follow recognized standards and principles, such as the Impact Management Project or the UN Sustainable Development Goals.

2 Ask the right questions

Asking the right questions is another way to spot and prevent greenwashing in venture capital. You can ask founders, managers, and investors what problem they are trying to solve and how they know it is a real and important problem. Additionally, you can inquire about how their solution addresses the problem and creates value for customers and beneficiaries. It is also important to ask about the potential negative impacts or trade-offs of their solution and how they mitigate them. Furthermore, you can inquire about how they balance their financial and impact objectives, as well as how they embed impact into their culture, strategy, and operations. Lastly, you can ask about how they hold themselves and others accountable for it. By asking these questions, you can assess the authenticity, relevance, and effectiveness of the venture's impact claims and practices.

3 Do your due diligence

Before you make any investment or partnership decisions, you should also do your own due diligence on the venture's impact performance and potential. This means verifying the information and evidence they provide, checking their references and reputation, and comparing their claims and results with their peers and benchmarks. You should also look for independent third-party validation, such as certifications, ratings, or audits, that can attest to the quality and credibility of the venture's impact. For example, you can look for ventures that have a B Corporation certification, a GIIRS rating, or an IRIS+ report.

4 Be transparent and honest

Finally, you should also avoid greenwashing yourself by being transparent and honest about your own impact intentions and actions. You should clearly state your impact goals, criteria, and expectations, and disclose how you measure and report your impact. You should also acknowledge your limitations, challenges, and failures, and be open to feedback and learning. You should also collaborate and share your impact insights and best practices with other investors, entrepreneurs, and stakeholders, to foster a culture of trust and accountability in the venture capital ecosystem.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?