Greenwashing - a good reason for the transparency of sustainable funds

Sustainable investments in the form of funds offer you the opportunity to combine your private provision with holistic ecological and social ambitions. You specifically support companies that behave in a resource-oriented manner.  

But when choosing funds, can you always be sure that you are actually investing in companies that meet your expectations? Does openly propagated environmental awareness always mean the same kind of action? Do you know under what conditions the listed standards are achieved and how forward-looking the company management actually acts?

The truth is, you don't. Sustainable investments require in-depth research up front. Whereby not every company readily lets itself be seen in the cards. The keyword "transparency" seems unavoidable.  

Only if a company presents its goals and action concepts in a comprehensible way, you as a potential investor are able to decide whether you are dealing with sustainability or greenwashing. This is an essential point if you want to avoid supporting dubious or controversial companies.

The lack of transparency was also on our minds as we started building Moniflo. It was immediately clear to us: we want to change that. For this reason, we placed great emphasis on finding the right data to ensure a high level of transparency for our users.  

In this article, we'll explain to you what the term "greenwashing" means, the role of corporate transparency, and how we help users understand the impact of funds through appropriate data.  

What is Greenwashing?

Greenwashing definition

Greenwashing refers to all PR measures in the course of which profit-oriented companies declare their products and actions to be sustainable without comprehensively acting in accordance with this criterion.

Sustainability definition

The term "sustainable" is generally not clearly defined. In the present context, it describes production methods and action strategies that respect human rights, take fair working conditions into account and support the sparing use of resources or aim to regenerate resources that are already overstretched.  

We thus encounter greenwashing wherever organizations take advantage of the current esprit and tout their product range as "fair trade," "environmentally friendly," and "resource-oriented." Often, however, these characteristics apply only to selected products or services, not consistently to the entire range. What is being promoted is an image, not a conscious attitude.  

On closer inspection, the interested observer will notice corresponding inconsistencies. There are no concrete statements on production routes or raw material acquisition. Many products are still manufactured using environmentally harmful techniques. Propagated sustainable concepts seem to be neither really consistent nor transparent.

The aim of the measures being courted is not long-term change, but short-term profit optimization. Companies concerned invest mainly in marketing their "green" image. The profits thus generated are rarely or only to a small extent used for renewable energies, the further development of appropriate technologies or fair salaries.

How does greenwashing work?

This approach is in line with the spirit of the times. An ever more extensive environmental awareness is emerging among the population. However, the focal points of this attitude are still observational aspects. We know that something has to change, develop an increasingly guilty conscience where we clearly encounter a need for action, but are not yet ready to leave our comfort zone to effect real change.

Organic seals, human rights pledges and raw material labels soothe this guilty conscience. We buy the feeling that we are doing the right thing without having to spend a lot of time or energy on it. The crux of the matter: We are willing to pay dearly for this relieving feeling, because quality has its price. An understandable equation, but one that cannot be reversed. A high price does not always mean high quality standards.  

A misconception that the average consumer nevertheless believes far too readily. Thus, labels with sustainable messages have a highly sales-promoting effect and are used accordingly on a wide scale. Fashion, food, mobility, services - in every conceivable economic sector, greenwashing products are marketed in this form.

Greenwashing: Examples show how important transparency is

Examples of such competitive strategies are a dime a dozen. The world-famous furniture giant Ikea promises sustainable timber cultivation in large-scale campaigns. However, the NGO Earthsight was recently able to prove that large quantities of wood from illegal cultivation are being used instead.  

Another case of greenwashing in companies became known as the "diesel scandal" in 2015. In the course of the "Clean Diesel" campaign, the car manufacturer VW had manipulated the exhaust emission values of its diesel vehicles and was able to generate high sales figures in this way.

What are the consequences of greenwashing?

So what does greenwashing mean for you as an investor or customer? Greenwashing is first and foremost a breach of trust. As a layman, you are often confronted with half-truths and vague statements whose reality is difficult to verify. Investment opportunities can be sold to you in well-chosen words and appear very confident at first glance, without actually being so.  

While you are trying to contribute to a sustainable economic system, you may find after some time that you have been running after a misleading promise. This creates an attitude of mistrust, which also makes it difficult for trustworthy companies to find the investors they need.

On the part of the companies concerned, greenwashing has the meaning of a criminal offense. Misleading advertising is prohibited in Germany, as is making false statements within an advertising promise.  

A false statement would be, for example, the inaccurate statement "made from 100% recycled raw materials", misleading, for example, the claim to have received an environmental award with certain conditions that does not exist or has never been awarded. Likewise, the claim to maintain environmental projects that do not exist in this form is considered misleading. The entrepreneur faces heavy fines and imprisonment of up to 2 years for such actions.

What role does a company's transparency play in this context?

If you as an investor want to make a sensible decision for selected funds, you are faced with the dilemma of distinguishing the real from the false statements. In order to provide you with optimal support at this point, a sustainably oriented company should be correspondingly transparent.  

Transparency in all aspects of company orientation, raw material extraction, processing, employee management, delivery and recycling provides the company with the necessary credibility towards you.

It also helps customers and investors if this information is as obviously accessible as possible. The WWF initiated an extremely meaningful survey on these facts. The respondents were specifically asked: "Climate warming and species extinction pose major challenges for our society. The economy, including the financial sector, is an indispensable part of the solution and should act accordingly and quickly in a sustainable manner. When it comes to your personal money, what would help you, what would you need to choose a green financial product?" (Source: WWF survey "Attitudes of the population to Sustainable Finance")  

Although the survey was specifically tailored to financial products, safe value growth and returns lagged behind better labeling and transparency of products touted as "green" by several percentage points.

This makes the comprehensible presentation of corporate actions a key decision-making aspect for sustainably oriented investors. This has also been recognized by the legislator. A Transparency Code has therefore been in place since 2008. By means of a seal that is easy to read, participating companies indicate that and how they present their actions in a transparent manner.

On this basis, the investor learns first-hand how to obtain more detailed information about a particular investment product. Accordingly, fund prospectuses must clearly present the funds' objectives with regard to sustainability aspects. Sustainability risks must be openly disclosed.

How do you recognize "greenwashing" products?

For you as a customer, the best remedy against greenwashing is honest interest and attentive information gathering. Products trimmed to "green" find sales where promises are not questioned. If you are informed, know what expectations you can have of an environmentally friendly product or the actions of a company and look at these specifically, you are basically already on the right track.

Greenwashing: procedure is similar in many cases

Many procedures are relatively easy to recognize under these conditions:

• Use of undefined terms or terms that are difficult to delimit (natural, careful, biological...)
• lack of evidence; claims are made that cannot be substantiated due to lack of reports or sources. If an institution does not disclose the origin of raw materials used and the location of its suppliers, you should immediately become skeptical.
• Overemphasis on individual "green" offerings, e.g., when a manufacturer touts its image with an electric car even though the rest of its production lines are based on finite raw materials
• Embellishment of harmful product characteristics by highlighting positive individual effects e.g. adults revel in positive memories when eating highly sugary children's products
• Use of self-evident facts as a unique selling proposition/advertising message e.g. we offer our employees at least 3 further training courses per year, while the granted further training courses have been prescribed by the employers' liability insurance association for years and are therefore made possible in every company

"Green" companies tend to describe their goals, progress and setbacks in some detail. Those who pursue a vision are convinced of its viability and hope for support from like-minded people.  

Accordingly, such entrepreneurs expect the sympathy of their customers and will not hide it if a strategy fails due to poor general conditions, prevailing laws or entrenched attitudes. On the contrary, a trustworthy institution will be eager to enlist your help in changing the overall situation.  

• Facts and figures are presented in this context in a verifiable manner. There are study references and detailed summaries of products.
• The provider works with tested and certified seals. You can familiarize yourself with them in advance.
• Many convincingly sustainable companies deliberately list achieved and unachieved goals on their homepage. Such team spirit is part of the corporate strategy.  
• New projects and actions can always be observed that serve to achieve these goals.
• Interested parties are involved in various activities and there is an opportunity for outsiders to express their opinions. Constructive handling of criticism is always a sign of progressive orientation.

Why it is still worth investing sustainably

Despite the hurdles mentioned, "green" funds are a good opportunity to influence the market and its underlying orientation in terms of sustainability. In the process, sustainable funds are at least as profitable as traditional funds. So it can be worthwhile to defy "greenwashing" companies and consciously support genuine new thinkers.

In line with current and ongoing events, the concept of sustainability offers market and growth opportunities. In this way, you invest not only in your personal future, but also in the positive development of overall social structures.  

The risks of loss are commonly the same as those arising from other investment funds. Profitability, liquidity and security aspects do not differ.

Sustainable investing via app: This is how Moniflo ensures a high level of transparency

So those who take a closer look usually work with the same profit opportunities as investors of non-sustainable forms of investment, but collect additional plus points through the added value of supporting responsible action in the social and ecological sense.  

But how can you find suitable funds and find out more about their effects? This is a question that we at Moniflo have also addressed. During our eighteen-month journey, we focused primarily on finding a solution to the lack of transparency. Our big goal: to make investing transparent, affordable, and accessible to beginners.

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