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The ESG investing market has grown to be one of the biggest in the world. According to Fortune Business Insights (27/10/2025), it was valued at $33.64 trillion in 2025, and is projected to grow to $125.17 trillion by 2032.

Standing for “environmental, social, and governance”, the acronym is now often used as a blanket term to denote investments – both individual companies and funds – that meet these ethical criteria.

So, this growth is great news if you want to align your invested wealth with your personal values.

However, despite the optimism surrounding ESG investing, the environmental aspect of it could face a serious existential threat: greenwashing.

Find out what greenwashing is, why it’s an issue for ethically minded investors, and how you can minimise its impact on your investments.

Companies greenwash to appeal to consumers and investors

Greenwashing is a practice in which companies exaggerate or even invent their environmental credentials for their own gain.

As the United Nations explains, greenwashing involves “misleading the public to believe that a company or other entity is doing more to protect the environment than it is”.

Companies might do this for various reasons, but these typically come down to financial incentives.

For example, according to PwC (15/05/2025), consumers are increasingly favouring sustainable brands and are willing to pay a 9.7% premium for sustainable products. In response, some businesses state that they are engaging in eco-friendly behaviours to attract these consumers, even if those claims are inaccurate or untrue.

The perception of sustainability also helps drive investment, especially among fund managers. A common way to access ESG investments is through funds that exclusively invest in sustainable assets. So, companies that present themselves as eco-friendly are more likely to be included.

This creates a difficult landscape for investors who want to make environmentally friendly choices with their wealth. If you want to invest in line with your ethics, there may now be doubt over whether the options you’re considering are actually as sustainable as they claim to be.

Unfortunately, the problem seems to be growing, with EY (10/12/2024) reporting that 85% of institutional investors say greenwashing is becoming a greater issue.

So, if you want to invest sustainably, it’s more important than ever to understand how greenwashing works and how to avoid it.

4 things to watch out for so you can spot greenwashing and avoid it

It’s clearly important to avoid greenwashing as far as possible, and there are various ways to do so.

Here are four things to watch out for so you can be confident that your investments are aligned with your environmental ethics.

1. Vague or misleading claims in companies’ policies or marketing

Many companies will advertise their environmental progress openly, and they’ll usually have a corporate social responsibility policy in place. So, if you want to avoid greenwashing, this can be a sensible first place to check.

Businesses may have these policies in place, but they might be quite vague, with no measurable data or clear goals included.

For example, if a company claims to be aiming for net zero by a certain date, what does it have in place to achieve this?

Meanwhile, if a business has made a supposedly eco-friendly change, is it overemphasising how impactful it will be?

Reviewing marketing and policy claims can give you an idea of how accurate a business’s environmental credentials are.

2. Companies still having bad environmental practices in their supply chains

Some businesses may have genuinely tried to clean up their environmental records within the context of their product or service. However, they may not be as environmentally friendly as they think if they overlook their own supply chains.

Imagine a manufacturing business that commits to sustainably sourcing all its power. That would likely reduce the business’s carbon footprint, making it seem like an eco-friendly investment.

However, if it buys its materials from carbon-intensive suppliers, its contribution to climate change could still be significant.

Check their environmental commitments and see whether they refer to their entire business, or only certain aspects.

3. Review third-party ESG ratings

Part of the problem with greenwashing is that reviewing the relevant information can be difficult and time-consuming, especially if you don’t know where to look.

Fortunately, there are now many third-party rating agencies that score businesses on their ESG credentials. This includes entities such as MSCI, Sustainalytics, S&P Global, ISS ESG, and Moody’s.

For a top-level overview of a company or fund’s performance, these scores – often expressed as a single number or letter – can offer an objective indication of how sustainable an investment is.

4. Check the underlying investments in funds

If you intend to invest sustainably through funds, it’s worth double-checking the underlying investments contained within them. Otherwise, it may include businesses that you know are not environmentally friendly, or that don’t fit your personal definition of sustainability.

The Financial Conduct Authority (FCA) (14/02/2025) has also started regulating investments, providing labels for funds that designate what sort of sustainable behaviour they are involved in. These are:

  • Sustainability Focus – Invest mainly in assets that focus on sustainability for people or the planet.
  • Sustainability Improvers – Invest mainly in assets that may not be sustainable now but aim to improve their sustainability.
  • Sustainability Impact – Invest mainly in solutions to sustainability problems, aiming to achieve a positive impact for people or the planet.
  • Sustainability Mixed Goals – Invest in assets with goals combined from the labels above.

These labels can offer extra reassurance that you know exactly what you’re investing in.

Working with a financial planner can help you choose appropriate investments

If you’d like to align your investments with your values, it can be useful to work with a financial planner, especially one focusing on ESG investing.

We can help you choose the investments that best reflect your principles, and ensure that you spot and avoid greenwashing wherever you see it.

Having the support of a professional can also be useful in ensuring that investments are suitable for your specific circumstances.

While ESG factors might be important to you, you still need to evaluate these alongside financial considerations like you would with any other investment.

For example, although a company’s environmental commitments may align with your personal views, it may still be unsuitable for your risk profile.

We can help you balance your ethical intentions with your financial circumstances. This helps ensure your ESG investments support your progress towards your financial goals, as well as benefit the planet or your community.

For more information, please get in touch.

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Approved by Best Practice IFA Group Limited on 01/12/2025