Sustainable pension funds accused of greenwashing – how can you tell if your ESG investments are reliable?

According to figures from the Office for National Statistics (ONS), 75% of adults in Great Britain are concerned about the impact of climate change.

This is likely because awareness of environmental issues has grown considerably in recent years, and it makes sense that you may want your investing goals to align with your ethical concerns.

That’s why you may contribute to a sustainable pension fund or prefer investments with an environmental, social and governance (ESG) focus.

These funds claim to invest your money in sustainable companies that follow ethical practices, so your wealth supports positive change and does not contribute to practices that damage the environment.

But the Guardian reports that more than 160 sustainable pension funds held $4.5 billion in companies including Chevron and ExxonMobil. So, these funds may not be as ethical as they claim to be. Indeed, many have been accused of a practice known as “greenwashing”.

If it is important to you that your retirement savings and investments align with your own sustainability goals, you may need to be aware of greenwashing and learn how to tell whether ESG investments are reliable or not.

Greenwashing can give false impressions about your investments

Greenwashing is when organisations claim to be sustainable while engaging in practices that are damaging to the environment.

Sustainable pension funds investing in large gas and oil companies that contribute heavily to carbon emissions is a prime example of this, and there are countless others.

Coca-Cola, for example, often claim that they aim to recycle all their bottles by 2030, despite currently being the largest plastic polluter in the world.

While many businesses have been accused of greenwashing deliberately, it can also be accidental, as illustrated by a recent investigation into the furniture retailer IKEA. They were found to be building furniture from illegally cut wood but, as it was approved as green by the Forest Stewardship Council (FSC), the company assumed that it was sustainable.

So, as you can see, any company can be involved in greenwashing, whether intentional or not. And this is problematic for investors for two reasons.

Firstly, your money may not be supporting the ethical practices that you want it to. And secondly, if companies are accused of greenwashing, this could affect their reputation and damage the value of your investment.

That’s why it is important that you know how to tell the difference between genuine sustainable credentials and greenwashing.

3 ways to spot greenwashing in ESG investments

Greenwashing can be difficult to spot but the good news is, if you know what to look for, you can make sure that your ESG investments are reliable.

1. Do your own research

It may not be a good idea to take claims about green credentials at face value because they can be deliberately misleading, or the company might not realise that they are greenwashing.

Instead, do your own research and decide for yourself.

If you are paying into a sustainable pension fund, you can find out from your provider where they invest your money, and then research those companies to determine whether their claims hold up.

There are three key things to consider when researching companies:

Do they invest in the problem? – investing in fossil fuels, for example
Do they support things that drive positive change in the economy? – green energy initiatives or recycling programmes, for example
Are they vocal about the need for action?

Essentially, these questions tell you whether a company acts on their claims about sustainability or whether they are empty statements.

2. Beware of “green” language

It’s easy for companies to plaster words like “sustainable” or “eco” on things but this does not mean that they are reliable ESG investments.

That’s because you will often find that genuinely sustainable companies can demonstrate their dedication to environmental issues through action. But greenwashing companies cannot, so they rely heavily on green language instead. As such, you may want to be cautious of companies that over-use these terms.

Additionally, unsubstantiated comparisons are usually a cause for concern. Claiming to be the “most sustainable” fund, for example, is meaningless if you don’t know what they are comparing it to or what metrics they use to decide this.

Indeed, in many cases, companies make these declarations themselves without any third-party oversight, so you cannot always trust them.

3. Seek some advice

If you have any doubts about ESG investments, it may be best to seek some advice from a financial planner. We can help you do due diligence on investments and ensure that they meet the sustainable standards that they claim to uphold.

Additionally, we will discuss your goals and your attitude to risk with you, so we can find investments that are right for your personal financial plan.

Get in touch

Anybody can fall victim greenwashing but with the right expert advice, you can be sure that your ESG investments are reliable.

Please contact us on hello@ardentuk.com or call 01904 655 330. As an award-winning financial advice company that was a 2022 VouchedFor Top Rated firm, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.