💵 This Is Not What It Seems

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From AI to ESG, things are rarely what they seem. Yet these shiny new themes are parroted to the point of absurdity. What's really going on?

So, to keep this topical, we asked Bing AI about greenwashing...

Hey Bing, What is greenwashing?

• Using vague or misleading labels, such as "natural", "organic", "eco-friendly", or "green", without providing any evidence or certification to back up these claims.

• Highlighting a single green aspect of a product or service, while ignoring other negative environmental impacts or trade-offs.

• Making false or exaggerated claims about the environmental benefits or performance of a product or service, such as reducing carbon emissions, saving energy, or preventing waste.

• Creating a green image or reputation through advertising, sponsorship, or public relations, without making any significant changes to the actual business practices or operations.

• Offering to offset the environmental impact of a product or service by supporting a green cause or project, without reducing the actual impact or making any long-term commitments.

A pretty good summary, but does greenwashing REALLY "exploit consumers growing concern for the environment and sustainability"?

Or does it exploit our human hard-wiring towards out of sight, out of mind 'solutions' to complex problems? 👇

Anyway, then you ask AI if greenwashing is harmful, which is where it gets a bit naive...

• Mislead consumers into buying products or services that are not truly green, and may even be harmful to their health or the environment.

• Discourage consumers from seeking more information or making more informed choices about the environmental impact of their purchases.

• Undermine the credibility and trust of genuine green products or services, and create confusion and scepticism among consumers.

• Prevent or delay the adoption of more sustainable and innovative solutions, and hinder the progress towards a low-carbon and circular economy.

This last one is the key. The circular economy. Not economically viable, and in many cases the process of breaking products back down actually takes more energy than making new ones. But, realistically, the option that would make the most tangible difference to the environmental impact of our existence.

AI then continues the naivety and goes on to give some tips on how to avoid falling for greenwashing

• Look for credible and independent certifications or labels that verify the environmental claims of a product or service, such as Energy Star, USDA Organic, Fair Trade, or Forest Stewardship Council.

Yes, because organisations don't have ANY history of becoming corrupted or ahem influenced...

We've all heard of the food pyramid and the importance of getting your 'five a day' right? No vested interests whatsoever, totally neutral 👇

The AI then offers up a load of suggestions that nobody in the general public realistically has time for, like reading fine print, checking sources, researching the companies and so on.

However, there's clearly an appetite for ESG investment...

So how can you avoid falling for greenwashing and ensure that your ESG investments are truly sustainable?

Do your research! Shocking idea I know.

We can't rely on labels or marketing claims alone, instead we'll need to look at the fund's holdings, methodology, criteria and performance.

Compare those with other ESG funds and benchmarks, and try and use independent sources of information, such as ratings, reports and disclosures when you do so.

Be critical. Ask questions about how the fund defines and measures ESG factors, how it engages with companies, how it handles controversies and conflicts of interest, and how it reports on its impact.

Look for evidence of transparency, consistency and accountability.

Be realistic.

Don't expect perfection from any ESG fund. There is no one-size-fits-all approach to ESG investing, and different funds may have different goals, strategies and trade-offs (just like any other investment).

It's all about understanding your own preferences, priorities and risk tolerances and trying to match those with an appropriate fund or investment.

Don't just look at ESG and 'green' investments

However, don’t discount funds that aren't overtly ESG or environmentally focused, or indeed stocks that don't have an obvious ESG bent within which large fund managers have a holding.

Why not?  

Well, Joachim Klement, the head of strategy at UK Investment bank Liberum highlighted some very interesting research in his most recent piece 👇

Engage or withdraw? What do the largest fund managers do?

The research was undertaken by Jonas Zink at the University of Augsburg in Germany, and looked at which investors best supported the transition towards a low-carbon economy.

To make that determination, the research looked at the behaviour of the five largest active fund managers in the US and compared their voting behaviour and practices regarding climate change to that of the average fund manager.

Drilling down into the data Zink excluded index funds and those with less than 80% of their assets invested in the US. 60% of the assets that met these criteria were managed by the five largest groups - economies of scale and critical mass count for a lot in fund management.

On the face of it, the fact that these large money managers stay invested in companies with poor ESG track records may sound negative.

However when Zink looked more closely at the voting record of the large non-ESG money managers he found something surprising.

When he compared the voting records of fund managers with the least environmentally friendly investments to those funds with green credentials and investments, he found that the so-called brown investors were even more likely to vote in favour of ESG-friendly proposals than their ESG counterparts.

This, rather counter-intuitively, suggests that institutional investors, in so-called dirty industries, are engaging with those businesses and trying to steer them onto a more environmentally sustainable path.

The difference is that the traditional money managers don't seem to want to shout about it. Which perhaps means we need to be more cautious about the claims of those who do...