Greenwashing, a term first coined in the mid-2000s, is now commonly used to describe the practice of giving a false impression of environmental friendliness. Essentially, it involves using marketing, imagery, and messaging to make products or practices appear more environmentally friendly than they are. For example, consider a bamboo toothbrush sold in a plastic packet or products labelled as 'eco-friendly' or 'greenified'—terms that often mean nothing but make consumers feel better about their purchases. In short, Greenwashing is a form of deception.
The Impact of Greenwashing on Investments
According to research from the Responsible Investment Association of Australasia, 88% of Australians expect their super or other investments to be managed responsibly and ethically, up from 83% in 2022. In fact, 65% would invest more if their investments had a positive impact on the world, an increase from 61% in 2022.
People want their investments to benefit society, such as funding housing for women escaping domestic violence, regional aged care facilities, or renewable energy, rather than supporting weapons manufacturing or oil companies; however, many investments do not align with these values. A lack of credible information from super funds and investments providers can be harmful and often results in Greenwashing, and Greenwashing erodes trust and diminishes the positive impact of genuinely Responsible Investments. This lost trust can feed through to advisers, who then don’t discuss the topic with their clients, which is a missed opportunity when discussion how to best meet your preferences.
The Case of Active Super
On June 5th, ASIC announced that Active Super was involved in Greenwashing through misleading marketing about its exclusion policies. Active Super claimed not to invest in certain sectors but did so indirectly through other managers. When super funds manage your money, they can either choose to invest directly, managing shares and bonds on your behalf, or invest with external managers who have specific expertise. Outsourcing is common and provides diversification, ensuring decisions are not concentrated among a few people.
The crux of the case was whether an ordinary consumer could distinguish between investments managed directly by Active Super and those managed by external managers. Given that super funds provide specific mandates to external managers, and the expectations of consumers, I think Active Super were stretching with this claim.
Detecting Greenwashing in Your Investments
Unfortunately, identifying greenwashing is not straightforward, which is why ASIC increasingly getting involved.
Active Super's marketing made their investment approach seem clear and responsible, using terms like ESG (Environmental, Social, and Governance) and negative screening (excluding companies that don't meet their criteria). Below is some examples, but ASIC also cited claims by Active Super in media statements, social media and Responsible Investment policy documents.
Despite claiming to exclude tobacco, nuclear weapons, gambling, and tar sands, Coal and 'Russia investments' ASIC found investments in Gabling companies like Skycity, PointsBet, Tabcorp, and Russian oil companies such as Gazprom and Rosneft amongst others within their portfolios. Based on the images above, do you think Active Super were Greenwashing?
You can read ASICs summary and find the judgement here.
Tools and Resources to Avoid Greenwashing
As an everyday investor, scrutinizing thousands of investments is impractical. However, there are valuable resources and tools:
Market Forces: Focuses on using capital to drive climate change advocacy.
Responsible Returns: A guide by the Responsible Investment Association of Australasia (RIAA), a data base of certified products that meet specific causes.
Personally, I use and recommend Ethos ESG, a fintech tool that helps advisers and investment professionals align investments with their clients values. (Full Disclosure, I am also a shareholder and distribute ethos ESG in Australia).
Although not available to general investors in a full product, you are able to see basic information on the site without having to sign up, and you can ask your adviser about the tools they use to ensure your investments are not Greenwashed.
Running a report through ethos on the Active Super Balanced fund, they miss the mark on all of the areas they claimed to ‘avoid’. Just as importantly, their Overall rating is very average (a Score of 52, where 50 is literally the average) bringing into question their claims when compared to their peers. A quick Ethos ESG search would have helped members choose whether the fund was right for them.
You can have a look at how your Super fund rates here. If you can't find your fund, let me know and I'll organise it's to be assessed.
The Challenges of Excluding Companies
A lot of discussion around Responsible investment sits around ‘exclusions’. Excluding companies based on screens can be important when meeting values, it can lead to issues when based on poor definitions, or portfolio challenges such as over/underweighting certain sectors, which can increase risk. On one hand, some of the world's largest companies are well-placed for transitioning to more sustainable practices, and collective investor pressure can accelerate this transition, but on the other a company that’s sole purpose is cigarettes is unlikely to just ‘stop’ making cigarettes.
This is a topic I will continue to explore in future blogs on Responsible investment.
In closing
Greenwashing is misleading and hugely problematic, however, don't let this discourage you from investing in line with your values if that is important to you.
Check your super fund on using the tools in this blog, and discuss your portfolio's alignment with your Financial Adviser.
You can even ask if they use ethos ESG.
Feel free to reach out for further guidance.
Other Resouces
ASIC Moneysmart - Environmental Social Governance (ESG) investing
