With the rise of environmental and climate-related concerns, more people are becoming familiar with the term greenwashing — which is when a company markets itself as more sustainable or environmentally friendly than it actually is.
Greenwashing impacts investors and consumers alike because it’s designed to mislead people through a variety of means, including: the use of vague terminology or false labels; making claims about green actions or outcomes that can’t be verified (or are found to be deceptive); using false or misleading research and data.
The term greenwashing is derived from the notion of whitewashing, which is when a company or individual conceals wrongdoings by presenting a cleaned-up, but deceptive version of their actions.
Key Points
• Greenwashing is when a company markets itself as more sustainable or eco-friendly than it is.
• Companies may engage in greenwashing to attract consumers, employees, or investors.
• Greenwashing can also be an attempt to avoid stringent or costly regulations.
• Common greenwashing techniques include misleading labels, vague or meaningless terminology, a deceptive use of data, and more.
• It’s vital for investors, as well as consumers, to look beyond an organization’s eco-friendly claims to verify whether they are adhering to ESG standards.
Types of Greenwashing
For some companies, greenwashing is a means to attract consumer and investor dollars. According to the 2023 Business of Sustainability Index, 68% of consumers said they’re willing to spend more money for environmentally friendly products.
But some companies engage in greenwashing to appear compliant with environmental regulations, which can be stringent and come with hefty penalties — especially now that some countries, like the EU. and U.K., are adopting anti-greenwashing laws.
Before you buy products marketed as sustainable or eco-friendly, or invest in a green company that makes similar claims, it may help to know the different types of greenwashing.
• Greenwashing a polluting product: Companies may attempt to improve the branding of a product by making it seem more environmentally friendly without actually changing much or anything about it.
• False associations: Brands can make it seem like they are endorsed by a third party when they really aren’t, or the third party is simply their own subsidiary.
• Green products from a polluting company: A company might make a product that has a lower environmental impact, such as an electric vehicle, but manufacture it in a way that creates significant waste and greenhouse gas emissions nonetheless.
Again, because socially responsible investing has grown so rapidly, and many companies want to attract the attention of investors and consumers with a green sensibility, there is commensurate growth on the greenwashing side, so it pays to be cautious when making choices.
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Example of Greenwashing
Greenwashing is increasingly on the radar of regulatory bodies that protect consumers and investors. But some watchdog organizations lack the resources to hold companies to account. A few examples of what would be considered greenwashing are described on the U.S. Federal Trade Commission (FTC) website:
• A company labels a trash bag they are selling as “recyclable.” Although this may be true, it’s unlikely that a bag full of trash will be emptied and then recycled on its own. This label makes the product appear to have an environmental benefit, but in reality it doesn’t.
• In another example, a company labels a product as having 50% more recycled content than a previous product did. This makes it sound like a significant amount, but in fact the company may have increased the recycled content from 2% to only 3%, so in reality there has been hardly any change.
• A company labels a product as “recyclable” but they don’t say specifically whether all parts of it are recyclable, just some parts, or just the packaging.
Other real-world examples include: An oil company that’s known for environmental negligence releases advertisements that state their dedication to a carbon-free future — or companies promising to do environmental cleanups, but failing to actually follow through on those promises.
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The Negative Impacts of Greenwashing
Although in the short term greenwashing might benefit a company if it leads to more people buying their products, the risk is that a revelation of greenwashing practices could quickly and negatively outweigh those gains.
The Impact on Consumers
If consumers catch on that a company is engaging in greenwashing, rather than adhering to ESG standards, there could be a public relations backlash. Consumers may feel duped, and may express their discovery of a company’s contrary claims in various ways: with other consumers, on social media, writing to elected officials, contacting the Better Business Bureau.
Depending on the scale, and the level of consumer awareness, this has the potential to damage a company’s reputation and trustworthiness, and cause consumers to turn to other brands.
In addition, companies that get caught greenwashing can also face legal ramifications for their misleading claims. And investors interested in true impact investing may take their business elsewhere.
The Impact on the Environment
In the long term, the biggest negative consequence is the actual environmental impact of manufacturing and other business practices that are not, in fact, green or sustainable. By using green claims to bolster their business goals, yet not living up to actual sustainability standards, companies not only add to environmental damage, they hinder efforts to create sustainable products and reach other socially responsible goals.
Companies rely on clean water and air, quality soil, viable supply chains, and a stable climate to operate. A thriving economy requires a healthy planet, and greenwashing ultimately doesn’t support either.
The Impact on Investors
Just as many consumers are seeking a clearer understanding of the environmental claims of various products and consumer goods, investors are looking for ways to vet the claims of financial companies that offer ESG-focused securities, like exchange-traded funds (ETFs) and mutual funds.
This has led some organizations to develop ESG frameworks, in order to provide investors with a way to assess companies’ ESG progress, and use accepted standards and metrics to compare one company to another. Companies that make ESG claims for their investment products can come under regulatory scrutiny, and may face substantial fines.
How to Spot Greenwashing
Many greenwashing tactics can be convincing. Here’s what to look out for when purchasing a product, or investing in a company that claims to embrace sustainability or ESG investing strategies (i.e., environmental, social, and governance practices):
• Vague language: Labels such as “eco-conscious,” “clean,” or “100% sustainable” don’t actually mean anything in terms of a company’s manufacturing processes or adherence to environmental criteria. Be sure to research ESG standards that reflect actual environmental practices.
• Natural imagery: If a polluting company uses marketing images of flowers, trees, beaches, and so forth, they may be trying to appear more environmentally friendly than they really are. Be sure to check whether the company or product lives up to the advertising.
• Fabricated data: Companies might fund research that will provide “results” that make them look better, or make data up completely. In some cases, it’s easy to vet company research or data via the company website or by doing an internet search.
• Grand claims: Some companies may pledge to reduce carbon emissions or announce a net-zero policy (or another ambitious goal), with little to back up the claim.
How to Avoid Greenwashing
Whether purchasing products or investing in companies, if you are looking for the most sustainable options, there are a few ways to avoid greenwashing.
1. Look for Clear and Transparent Language
If a brand makes sustainability claims, look for specifics such as certifications, verifiable third-party endorsements, industry credentials, and details about exactly what the brand is doing.
2. Evaluate the Data
If a brand uses statistics and numbers to back up its sustainability claims, make sure the numbers are backed up with credible data.
3. Compare Similar Products
A company may make sustainability claims when in fact their product has basically the same environmental impact as a competitor’s. Compare ingredients, packaging, and manufacturing information to see whether one product is really better than another.
4. Look Beyond the Final Product
Even if a company is improving the impact of its products, it may not be addressing the waste and emissions associated with its operations or supply chain. If this is the case, they may be just making changes for marketing purposes. Check out a company’s website and/or follow watchdog groups to learn how much effort is going into sustainability at the corporate level.
5. Look for Goals and Timelines
If a company is truly implementing a comprehensive sustainability plan, it would include measurable goals and timelines. Ideally those would be available to investors and consumers on a public forum such as the company website, in the interest of transparency.
6. Verify Ingredients and Materials
Some terminology and product labels can be misleading. For instance, a company might say that their product is made from organic cotton or recycled plastic, when in fact only a small percentage of the cotton or plastic is organic or recycled and the rest is not.
The FDA has no guidelines for what the term “natural” means, and according to the USDA the term simply means that a product is “minimally processed” with “no artificial ingredients.”
Greenwashing vs. Green Marketing
Although greenwashing is when a company attempts to cover up their bad practices, there is nothing wrong with a company telling the story of its environmental initiatives, and the steps it’s taking to produce products more sustainably.
That’s green marketing at its best and most transparent.
How to Recognize Green Marketing
Actual green marketing may include:
• Certifications and endorsements from established regulatory organizations
• Clearly labeled manufacturing processes
• Recyclable, compostable, or biodegradable materials (but watch out for these labels, sometimes a product can actually only be composted or biodegrade in very specific conditions that aren’t realistic).
• Products free from toxic chemicals
• Use of renewable energy
• The use of transportation measures such as EVs
• Purchase of carbon offsets for any unavoidable emissions
• In-office programs and measures such as renewable energy, LEED certified buildings, on-site composting, or elimination of single use plastic
• Doesn’t use too much packaging, and ideally avoids plastic packaging
• Circularity programs that allow consumers to send back the product for repair or reuse
• High-quality manufacturing made to last rather than one-time or short-term use
• Fair trade and ethical labor practices
• Environmental programs outside the company, such as donations or volunteer efforts
Greenwashing Regulations
There are currently no laws in place to prevent greenwashing practices in the U.S. The FTC does have a set of Green Guides, which are not mandatory, but can help companies avoid falling into greenwashing territory.
Globally, the outlook for anti-greenwashing measures is somewhat more robust. The last couple of years have seen a rise in anti-greenwashing policies or preliminary taskforces in various countries around the world.
• The EU Green Claims Directive is a new law that was approved by the European Parliament in 2024, and is now being enacted by member states, with a September 2026 target date for implementation.
• In the U.K., the Green Claims Code is a set of principles that businesses must adhere to, or face regulatory consequences.
The Takeaway
Greenwashing is a marketing tactic some companies use to align themselves with the growing consumer and investor desire for sustainable products and investments. It’s related to the concept of “whitewashing,” which means covering up the truth with a positive-sounding story.
Investors committed to sustainability can look for red flags of greenwashing before deciding whether to invest.
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FAQ
What is ESG greenwashing?
ESG greenwashing is the practice of using marketing tactics to exaggerate an organization’s environmental, social, or governance efforts in order to attract customers, employees, investors, or positive media attention.
What are the three most common kinds of greenwashing?
Three common types of greenwashing are the use of environmental imagery, misleading labels and language, and hidden tradeoffs where the company emphasizes one sustainable aspect of a product — while still engaging in environmentally damaging practices.
What is the role of regulations in combatting greenwashing?
Ideally, regulations against greenwashing practices will deter companies from false and misleading practices. Regulations can establish standards that result in clearcut penalties in the case of greenwashing violations. As of early 2025, there are only a few anti-greenwashing regulations in effect, worldwide.
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