Greenwashing and how it can be avoided

IS a fund sustainable just because it says it is? That is the essential question behind the issue of greenwashing. It is a word that has even earned its place in Meriam-Webster, which defines it as, "expressions of environmentalist concerns especially as a cover for products, policies, or activities".

Think of greenwashing as an asset manager adding a thin coat of sustainability - a so-called "green sheen" - to a fund. The problem starts with the term 'green' itself: it has such a wide range of meanings and can lead investor to assume that a 'green' fund must meet a specific set of criteria, when such common standards don't exist globally.

So a key element is transparency about what is actually going on and why a fund is or isn't 'green'. This is one area of confusion. The more cynical view is that lack of transparency or communication is a deliberate attempt to misrepresent the characteristics of a fund to attract more investors, as it exploits the fact that no precise standardised definitions on what qualifies as 'green' or 'sustainable' yet exists.