In recent decades, green investing has grown to present investors with a myriad of options: renewable energy projects, solar panel developers, etc. While many companies that strive to create positive change actually do so, some are not quite so honest nor transparent. There are those companies that exaggerate their green claims in order to sneak into portfolios when reality they do little to nothing to benefit the environment. The practise is known as “greenwashing” and can lead investors to divert funds into investment vehicles that do nothing for – or worse, actively harm – the environment.
There are three questions that you should ask before you start investing in green energy to avoid the pitfalls of greenwashing.
Is renewable energy core to the company’s business model?
“Going green” can be a bit of a buzzword, especially when it comes to trying to court investors. Thus, the definition of “environmentally friendly” can become a little unclear. To allay any concerns of greenwashing, investors can probe the companies’ core businesses and values. Has the firm made intentional contributions to helping the environment? Do its current strategies align with green goals? If you’re looking at investing in a renewable energy business but it comes secondary to the company’s primary operations, it may not be a core focus for ongoing investment, and there’s a chance that some greenwashing is happening.
Can the company quantify its impact?
Forbes points out that a popular adage sums up an important consideration when it comes to assessing supposedly “environmentally friendly” companies: “You don’t prioritise what you don’t measure.” A company will demonstrate its dedication to its impact on the environment by holding itself accountable for clear, quantifiable goals. The focus on sustainability should produce tangible outcomes; be wary of companies whose environmental mission is too vague.
Does the company’s culture support its commitment to making a positive impact?
Most successful green companies have a desire to make a positive impact that goes beyond just helping the environment. This should be an integral part of their culture that extends to the way they treat their employees, partners, and other stakeholders. To find out more, it might be a good idea to look into media reports and online discussions about the company. When doing so, look into their reputation for ethical business practices (or lack thereof). Are the employees a part of the firm’s vision and impact? Ideally, the company would have the ethos to support its environmental goals.