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Greenwashing in finance: Not everything green is truly sustainable

Published on 19 November 2024

Sustainable finance is on the rise, but not everything claiming to be green is as it seems. To protect investors and promote transparency, LĂ«tzfin has launched a campaign to raise awareness about the risks of greenwashing.

Summary

    Financial education is vital to help investors understand what they are buying. By recognising and avoiding financial products that fail to deliver on their sustainability claims, we can build a trustworthy and impactful sustainable finance ecosystem.

    Jessica Thyrion

    Adviser – financial education, ABBL

    Greenwashing in finance: why it matters

    In the financial sector, greenwashing occurs when products or services are marketed as more sustainable than they truly are. Common tactics include:

    • Exaggerated claims: Labelling financial products as “green” or “sustainable” without meeting recognised ESG (Environmental, Social, and Governance) standards.
    • Lack of transparency: Insufficient or vague information about how investments are managed and their real impact.
    • Dubious certifications: Labels that lack independence or rigour, offering a false sense of credibility.
    • Selective reporting: Highlighting one sustainable product while other activities within the organisation fail to meet similar standards.

    Such practices mislead investors who aim to align their portfolios with their sustainability values and undermine trust in sustainable finance.

    How to protect yourself

    The LĂ«tzfin campaign offers practical advice to help investors navigate the risks of greenwashing:

    • Demand transparency: Look for detailed and verified reports about a product’s sustainability credentials.
    • Question vague promises: Terms like “green” or “eco-friendly” must be supported by measurable and specific evidence.
    • Verify certifications: Choose products with labels issued by recognised and independent organisations.
    • Consult specialists: Engage financial advisors with expertise in sustainable investing to ensure your choices align with your goals.

    Why the ABBL supports this campaign

    For the ABBL, supporting the LĂ«tzfin campaign is a key step in promoting transparency and investor protection. By raising awareness of greenwashing, we can ensure that sustainable finance delivers on its promises and strengthens confidence in the sector.

    Greenwashing not only misleads investors but also risks undermining the progress of sustainable finance as a whole. At the ABBL, we believe that a well-informed and vigilant approach to investing is essential to driving genuine environmental and social change.

    Learn more about the campaign and its resources on www.letzfin.lu. Together, we can support a sustainable finance ecosystem that truly makes a difference.