From Open Risk Manual


Greenwashing in the context of Sustainable Finance is any form of marketing or other communication / disclosure that uses deceptive means to persuade investors, regulators or the public that an organization's products, aims and policies or financial instruments are environment friendly.

It is the practice of gaining an unfair competitive advantage by marketing a financial product as environmentally friendly, when in fact the applicable environmental standards have not been met[1]


The term greenwashing was coined by New York environmentalist Jay Westervelt in a 1986 essay. A more recent succinct defintition is: The intersection of two company behaviors: poor environmental performance and positive communication about environmental performance.[2]

Greenwashing is a colloquial term used to describe claims made against a company for using sustainability advertising for products and services that are in fact not contributing to or even causing harm to the environment. Definitions vary; however, the term “greenwash” refers to environmental claims that could be considered false, unsubstantiated and/or unethical[3]


The rise of greenwashing coincides with increased awareness of sustainability challenges, paired with ineffective regulation and/or definition of what is "green". Greenwashing in the financial sector is a subset of more general greenwashing practices by corporate entities involved in the production of goods or services with a significant Ecological Footprint.

Mechanisms and Manifestations

An indicative list of greenwashing mechanisms would include[4]

  • Missing or misleading factual information (Incompleteness / Errors)
  • Claims of non-material, non-strategic and / or of limited relevance
  • Hidden Trade-offs. (See Also Do No Significant Harm Principle)
  • Lack of Proof or Verification. Claims that cannot be substantiated or independently confirmed
  • Vagueness / Unreliability. Claims that are poorly defined
  • Not Neutral or Balanced. Exaggeration of factually correct claims. Not a faithful representation of the entire picture
  • Claims lacking Comparability. Not comparable with sectoral or other benchmarks
  • Complex corporate structures and/or Financial Products that structurally hide "brown" activities
  • Marketing that exploits known psychological blind spots of individuals (evocative language, suggestive imagery, mental associations etc.)


  • ESG Funds falsely portraying themselves as adhering to an ESG Investing (or voting) strategy to attract investor money
  • Incomplete or inapproriate use of corporate issue CO2 data
  • Reduced exposure to opportunities / green solution and overweight of sectors with no impact on climate change
  • Reporting with vague formulations and with an advertising character, focus on actions away from the core business
  • Any type of information that is provided without indications for fundamental support with a view to being “green” such as, for example, references to regulation
  • Reporting that is only qualitative; missing quantitative targets
  • Reporting that is not at a strategic level; not reflecting the business model; not material; merely a communication exercise
  • Nice wording without any concrete facts or key performance indicators (KPIs)
  • Context is lacking, especially context to scientific boundaries. Information that is not correlated with sustainability objectives and targets
  • When a company does not report on gross GHG and water consumption - but simply report net-figures, where they have deducted bought CO2 compensations and purified water
  • Reporting that promotes a product as environmentally-friendly because of a single characteristic, even though other product characteristics are harmful to the environment.
  • The use of unclearly defined terms which can easily be misunderstood
  • A partial approach to sustainability: not discussing taxation, biodiversity, links to digital transformation
  • Information not balanced, selective, biased, uniquely or mostly oriented towards positive impacts generated by the organisation activities
  • Statements made without appropriate signoff / buy-in from the senior management of the business
  • Not applying any kind of acknowledged national or international standard or framework


  • provision of rigorous and standardised ESG information[5].
  • Key rules on climate benchmarks input data (data quality disclosure and verification), including the accounting of scope 1, 2, and 3 GHG emissions
  • Allocation constraints based on sector's potential impact on climate change [6]

Financial Literacy

In the context of the Financial Competence Framework, Greenwashing is a topic in the Financial Landscape subject matter domain.[7]


Mastering the role of Greenwashing in financial literacy context requires the following competences:

Code Competency Description Competency Type
524 Understands the concept of greenwashing and its implications Knowledge
525 Adapts investment decisions when one becomes aware of instances of greenwashing Skill

See also


  1. Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment
  2. Delmas, M.A., Burbano, V.C., 2011. The Drivers of Greenwashing
  3. WBCSD Definition, Sustainable Consumption Facts and Trends, From a Business Perspective, 2008
  4. Towards Sustainable Businesses: Good Practices in Business Model, Risks and Opportunities Reporting in the EU, EFRAG, 2021
  5. Sustainable financial markets: translating changing risks and investor preferences into regulatory action, S.Maijoor, ESMA, 2020
  6. TEG final report on EU climate benchmarks and benchmark ESG disclosures, 2019
  7. European Union/OECD (2022), Financial competence framework for adults in the European Union