A Way to Avoid Greenwashing

Understanding and sizing up ESG risk exposure is where to start if you want to avoid stocks that greenwash.

Kate Lin, CAIA 27 April, 2021 | 11:11
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Greenwashing

‘Greenwashing’ is a process in which a company markets itself as environmentally sound, or claims to adhere to ESG (environmental, social and governance) factors, while not actually doing so. Greenwashing is basically misleading – for example, a company might try to convince its investors that it is environmentally friendly because it uses solar power in its offices, but may continue to pollute waterways by dumping chemicals into the ocean.

As Morningstar.com’s Director of Investor Education Karen Wallace points out, “Greenwashing affects consumers and investors alike. Companies that make false claims about the sustainability of their products profit from duping consumers who believe they are making an earth-friendly or socially conscious choice. Asset managers who claim to follow a sustainability-led mandate but invest in companies with significant ESG-related risk are doing their fund investors a similar disservice.”

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About Author

Kate Lin, CAIA

Kate Lin, CAIA  is a Data Journalist for Morningstar Asia, and is based in Hong Kong

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