As ESG continues to influence investment opportunities, greenwashing is becoming a big problem globally. When first introduced nearly two decades ago, the aim of ESG was to prioritize environmental, social, and governance standards in addition to profits. Large financial investors announced ESG priorities, and over 1000 mutual funds and exchange-traded funds (ETFs) were created to reward and track ESG initiatives. These investors have created pressure on public and private companies to develop and announce ESG goals. In particular, there is pressure to announce and promote “sustainable” practices and low or zero carbon emissions.
While many of the corporate initiatives achieve laudable goals, there is a temptation to make broad and sweeping pronouncements about a company’s goods and products. Greenwashing is when the management team within an organization makes false, unsubstantiated, or outright misleading statements or claims about the sustainability of a product or a service, or even about business operations more broadly. Some greenwashing is unintentional, due to a lack of knowledge or understanding on the part of management, but sometimes greenwashing is also carried out intentionally through marketing efforts. Greenwashing is such a problem than the UN Secretary-General announced that “we must have zero tolerance for net-zero greenwashing” and appointed an “Expert Group” to study the issues. Their report discussed the problem and ways to combat the issue.