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6 Types of Greenwashing Asset Managers Need to Know

Posted on December 4, 2023

Melissa Chase
Melissa Chase
Editorial Manager, ESG and Sustainable Finance

The concept of greenwashing is not new. For years, consumers have been mindful that the environmental claims on the products they purchase may be exaggerated, misleading or blatantly false. Their skepticism is not unfounded. A recent survey showed that almost three in five CEOs had made false claims about their company’s environmental, social and governance (ESG) performance.1

Investors, asset owners and financial regulators are also scrutinizing the validity of investment products’ sustainability claims and labels. As the world focuses its collective attention on transitioning to a low carbon economy, the market for investments to support that transition has grown exponentially. Between 2016 and 2021, global assets under management (AUM) dedicated to sustainable investing grew by 19% per year, reaching a peak of US$2.1 trillion.2 Some firms have tried to capitalize on this market shift by overstating their commitments to and integration of environmental and social factors in their investment products, leading regulators to develop new rules to protect investors and the credibility of the sustainable investment market.3  

Conducting your due diligence is essential for asset managers, fund managers, and other market participants building financial instruments to support global climate and development goals. But what should they be on the lookout for? Read on to learn about the different forms greenwashing can take and how companies may overstate, underplay, or avoid making sustainability claims. Also learn the steps asset managers can take to mitigate potential greenwashing risks in their investment portfolios and products.  

Greenwashing: When Sustainability Words and Actions Don’t Align

The working definition of greenwashing within investments is, “a practice where sustainability-related statements, declarations, actions, or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product, or financial services. This practice may be misleading to consumers, investors, or other market participants.”4

The lack of clarity around which activities are considered sustainable, along with evolving reporting and disclosure standards and accounting methodologies, leave many aspects of sustainable investing open to interpretation. This leaves investors exposed to potential misunderstandings and misrepresentations. Whether intentional or not, the outcomes from greenwashing in finance remain the same: risks for fund and asset managers in the form of fines or damaged reputation;5 confusion among issuers and investors; the erosion of investor trust and confidence; and funds being invested in unintended ways. 

In response, regulators, accounting bodies, investor coalitions and environmental organizations have pushed for a more standardized definition for what is considered “sustainable” and imposed reporting, disclosure, and labeling standards within sustainable investing. 

Greenshifting: Transferring Blame for Sustainability Shortfalls to Consumers

This is the practice of firms subtly shifting the responsibility of addressing climate and environmental issues related to their business and products to the consumer. For instance, fossil fuel companies co-opted the term “carbon footprint” to shift the public focus away from companies having to lower their emissions. Instead, emphasis was placed on individuals and reducing the emissions from their cumulative activities, rather than demanding oil and gas producers transition away from fossil fuels.6 While individual consumer actions can help to lower global emissions, a more substantial impact would come from industries making the transition away from fossil fuels.  

Green-hushing: Keeping Quiet About Corporate Sustainability Goals and Progress

Globally, companies are coming under greater scrutiny from stakeholders and critics alike for their claims of making positive environmental and social impacts. To avoid accusations of greenwashing, some companies are deliberately downplaying or hiding their sustainability goals. 

Transparency is essential to ensuring investments are genuinely sustainable and funds comply with current regulations. Companies should set realistic, yet ambitious science-based, decarbonization targets and publicly report on their progress. By keeping sustainability goals and targets private, companies may no longer be held publicly accountable for meeting those targets, managing the risks they are exposed to and addressing their impact on the environment and society. 

Green-crowding: Modeling Sustainability Activities After Late Adopters

While industry collaboration on sustainability-focused initiatives is encouraged, the practice may also result in green-crowding. Instead of emulating the sustainability practices of their industry-leading peers, companies model their business and marketing practices in line with slow or late adopters. Companies may also deflect and distract from their own shortcomings by pointing to their participation in industry-wide commitments and initiatives. 

Although these companies are outwardly supporting sustainability practices, they could likely do more to align with global climate and decarbonization goals. In these instances, examination of how an issuer’s actions and progress compare to leading industry practices and science-based decarbonization pathways can help identify those companies hiding amongst the crowd.

Greenlighting: Using Sustainability Initiatives to Distract from Harmful Activities

Companies engaged in greenlighting will focus their marketing and public relations resources on a few specific sustainability initiatives, diverting attention from more unsustainable practices elsewhere in their operations. For instance, some fossil fuel-based energy companies may promote their renewable energy assets or support of offset carbon credits, while continuing a business model focused on environmentally harmful fossil fuel extraction, processing, and production.

While organizations’ sustainability efforts may be commendable, it is important for investors and other stakeholders to consider the impact of all business activities, as well as impacts across the entire value chain. Thus, conducting due diligence on the ESG impacts, progress, and risks of companies in their sustainable investment portfolios is key to mitigating potential greenwashing risks.

Impact-washing: Overstating a Portfolio’s Positive Impacts

Investors are paying increasing attention to the positive and negative impacts of issuers’ business activities on the environment and society. To attract impact-focused investors, fund or asset managers may overstate the social or environmental benefits of a firm in their portfolio. Such exaggerations can be intentionally dishonest, embellishments, or errors flowing from poor impact measurement techniques. Regardless of the cause, impact-washing could have similar negative effects on reputation and client trust as other forms of greenwashing.  

What Can Asset Managers Do to Mitigate Greenwashing Risks?

To start, if you’re creating sustainable investment products, you must have a responsible investment policy outlining how ESG factors will guide your investment and allocation strategies. The policy should be communicated across the organization and applied by managers of ESG or sustainably labeled funds. Failure to do so could be viewed as greenwashing and expose you to potential penalties and fines. This was the case for DWS Investment Management Americas Inc., which agreed to pay US$19 million in fines after the U.S. Securities and Exchange Commission charged the firm with making, “materially misleading statements about its controls for incorporating ESG factors into research and investment recommendations for ESG integrated products.”7  

Having a clearly defined product and plainly communicating the investment approach and outlook to clients can also help mitigate greenwashing risks. For instance, if your portfolio uses a compliance-driven approach — one that looks to invest in firms that do only what is required of them — then your portfolio reporting, disclosures and marketing materials should not overstate the investment’s environmental or social impacts.

Sourcing reliable data will support product definitions and labels as well as your overall responsible investment policy. Information from companies’ own reporting, plus from third-party data, can provide comprehensive insights into issuers’ progress on sustainability targets and their exposure to and management of material ESG issues. While much of the data available to asset managers today is backwards looking, in that it presents historical information, robust ESG investment approaches also incorporate forward-facing analysis, and informed projections about conditions investees may face in 2030 or 2050.

Finally, your investment and ESG teams can work together and share information about the ESG and sustainability practices of current or potential investees. One approach is to invite asset managers to participate in ESG engagement processes and use those outcomes as part of the investment decision-making process.

To learn more about how you can mitigate greenwashing risks, download our ebook Seeing Through the Green: A Guide to Greenwashing Risks for Asset Managers.



  1. Google. 2022. Report: What it will take for CEOs to fund a sustainable transformation.
  2. EFAMA. 2022. Asset Management In Europe. December 12, 2022.
  3. Eurosif (nd). Sustainable Finance Disclosure Regulation.
  4. European Securities and Markets Authority, 2023. ESAs put forward common understanding of greenwashing and  warn on risks.
  5. U.S. Securities and Exchange Commission. 2023. “Deutsche Bank Subsidiary DWS to Pay $25 Million for Anti-Money Laundering Violations and Misstatements Regarding ESG Investments.” September 25, 2023.
  6. New York Times. 2021. “Searching for Hidden Meanings in Climate Jargon.” New York Times. October 31, 2021.
  7. Ibid. U.S. Securities and Exchange Commission. 2023.

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