Does it all add up? The minefield of greenwashing and benchmarking.

In our last issue, I spoke about how I began my journey into sustainable finance. Once you’ve made that first step, you’re on your way to changing the world one investment at a time. But how do you make sure your investments are acting as you wanted them to??

The minefield of greenwashing.

Greenwashing occurs when a company presents itself as more ethical than it actually is. With the recent surge in sustainable investing, greenwashing has become harder to identify, and it can be tricky to know what is truth, and what is exaggeration.?

One of the reasons that greenwashing is able to thrive is because companies that are sustainable still aren’t transparent enough with where your money actually goes. When you add confusing investing jargon to the mix, the average sustainable investor might not be able to figure out what exactly a company is saying.?

Companies which aren’t sustainable then use this lack of transparency to their advantage, hiding their less favourable actions behind huge marketing pushes and withheld information. Any investor who has tried to navigate this environment will probably agree - even when you try and keep control of the situation by performing detailed research into companies you trust, it is still far too easy to be misled.

Have a look at 'The five: ads banned for greenwashing ' in a 2020 article by The Guardian.

This BMW ad is one of the featured examples!

The issue of greenwashing is especially prevalent in the oil and gas industry - after all, how can you really make a positive impact on the world if you’re responsible for half of the damage?

What you see is not the full picture...

Consider how Shell presented its spending in 2020. They widely publicised that they had invested $90 million in ‘nature-based projects’ which ‘reduce or avoid emissions’, as well as $70 million in Carbon Dioxide Capture & Storage (CCS).?This all sounds like great progress, right? That is, until you learn that in the same year, Shell spent $1.7 billion across its’ ‘Upstream’ and ‘Integrated Gas’ businesses’, according to Client Earth .

Compared to this, the money invested into nature-based projects and CCS come to just 9.4% of what was spent on fossil fuel research. Does that still sound sustainable to you?

So how do you make sure you’re seeing the whole picture with your investments?

The world of benchmarking.

Benchmarking exists to show you how well companies, industries, or specific funds, are performing compared to one another. The process uses set indices or assessment criteria to show you what results you could expect from ‘best practice’, and how certain companies compare to these results.?

Both benchmarking and greenwashing influence how we perceive companies that we are considering investing in. That’s why, for this issue, I thought it would be interesting to hear from someone in Public Relations. After all, the idea of perception, and how companies present themselves in the public eye, goes much further than finance.?

Hertha Baumann-Zürcher works as a Senior PR Consultant and is Head of the Zurich Office for Voxia Communications, specialising in sustainable investing. When it comes to the difficulty of benchmarking, Hertha recalled a conversation with an asset manager who had just launched a ‘sustainable gold fund’. While there is plenty of information and benchmarks available for sustainable gold, it can be difficult to know where to begin, and which criteria applies.?

The asset manager’s answer - that the fund would use recycled gold, was something Hertha had not considered at first, showing just how wide-reaching sustainability benchmarks can be. This cemented what she sees as the main difficulty of benchmarking: not knowing what benchmarks you should be using, and when to use them.

This issue goes much further than personal investments - as Reuters summarised, ‘investing green is all the rage, but benchmarks are still hazy’. This ‘haze’ is how greenwashing slips into the industry, and it makes it much harder for the average investor to understand their impact. On top of all of this, when people struggle to find the correct ESG criteria, they fall back on the standard, historical benchmarks for investing which, not being tailored to sustainability, often produce less favourable results. The more we miscalculate benchmarks, the longer we will have to put up with falsities on the ‘high-risk, low-reward’ status of sustainable investing, which recent years (and last weeks’ issue) have shown us is clearly not the case.?

The bottom line.

While we’re far from finished, we should take a moment to appreciate the enormous progress being made. On a daily basis, Hertha sees that asset managers are truly trying to engage, whether it’s waiting to invest in a company until it has proven its dedication to a gender equal workforce, or encouraging them to reduce their carbon footprint.?

[Asset managers] really do make an effort, but these huge changes do take time. - Hertha Baumann-Zürcher

I learn about new, innovative approaches towards making sustainable investing better and more transparent every day. Regulators are making strides in fostering more transparent terminology and methodology, and the European Union is working on their new EU Taxonomy , a system which categorically lists ‘environmentally sustainable economic activities’. The same can be seen amongst innovative financial service institutions, who are committing to higher standards of activity; many becoming signatories of the Principles for Responsible Investing (PRI).?

Even amongst end consumers, there is hope. Good Loop , who promote an ethical approach to advertising, have recently become the 'first advertising technology company to achieve B-Corporation status '. Their ad formats, ‘watch to donate’ and ‘engage to donate’, allow any consumer who stays on the ad to unlock a free donation from the advertiser, and this can be sent to a good cause of their choice. Initiatives like Good Loop are forward-thinking, and put values above money, which is why they are so successful in what they do.

There are countless ways for you to explore this issue - here are a couple platforms and resources to begin with:

• Client Earth’s 'Greenwashing files ': help you to see the truth behind company advertising, and to stop greenwashing in its tracks.
• Climate Action 100 : an investor-led initiative which reviews the climate promises made by 167 companies, and helps you know when and where to hold them accountable.?
• The Big Exchange : all of their investment options have completed a ‘positive impact test’, and are awarded medals for you to see just how well they’re doing.
• Look into the Principles for Responsible Investing , a UN-supported network of investors who encourage and promote their six sustainable principles.?

It might take some time, but by forming your own opinion out of your own experiences, you can be sure that you know exactly what you’re measuring, what your money does - and what it all means to you. Hertha values going to events and listening to the questions people ask, as it helps you to realise new directions to take your values in the future.?

What do you do when you see a company guilty of greenwashing? And how do you ensure that your sustainability benchmarks work for your values, first and foremost? Let me know in the comments!

I was inspired to write about greenwashing and benchmarking from a comment Hertha left under our last issue - and I’m so glad she got in touch! If you have a topic you want to collaborate on, don’t hesitate to reach out.?