Are your investment managers greenwashing?
Greenwashing is generally seen as intentional misrepresentation of a mutual fund by its manager to claim that the fund intends to be “sustainable,” , “climate change”, “green,” etc, This is often found in its naming.
Moreover, this may not be fraudulent but instead result from differing definitions of “sustainability”, and/or a mismatch between an investor’s expectations and the fund manager’s methodology. This is increasingly likely as there are no universally agreed-upon definitions for environmental investments.
Greenwashing came to my attention during a conversation, with my buddy Jon Hale, Ph.D., CFA, former head of sustainability research for Morningstar. He found that many funds that did not name themselves ESG, were often scored higher on Morningstar’s Sustainability ratings. A more formal discussion can be found in “What Is Greenwashing, and Answers to Your Other Questions”.
You might think your portfolio aligns with your principles… but does it, really? The good news? You can audit your investments yourself using free, publicly available tools like As You Sow. No more guessing or trusting fund names alone.
Understand what greenwashing can look like
Greenwashing often happens when a fund uses language like “sustainable,” “clean energy,” or “ESG” (Environmental, Social and Governance), but still invests in companies that contradict what you might deem to be values. Examples include:
- Hidden fossil fuel holdings
- Investments tied to deforestation
- Surface-level “ESG” tweaks without meaningful impact
401(k) specialist magazine published an article ESG Funds’ Lack Truth in Labeling: Study. It said “Based on the research, “Identify ‘Greenwashing’ Funds Using NLP Firms’ Prospectuses” showed that one cannot tell the difference between a prospectus for true ESG vs. greenwashing mutual funds and ETFs.”
The researchers used tools from As You Sow. This set of of tools helps you move past marketing to actual data. You may want to read As You Sow’s methodologies to see if you agree with them too. I have found that As You Sow’s evaluations of a mutual fund may not agree with those of Morningstar’s Sustainability Ratings or YourStake. The latter two are tools available by subscription, only to investment advisers.
Use Fossil Free Funds & Deforestation Free Funds to detect greenwashing
As You Sow is a tax-exempt, nonprofit organization dedicated to educating and empowering shareholders to change corporations for the better, through the collection, analysis, and dissemination of relevant information to the public; free of charge. While it provides a breadth of tools to help you invest your values, I will focus on its environmental tool set.
Fossil Free Funds lets you check mutual funds and ETFs for fossil fuel exposure and carbon footprint across 3,000+ U.S. stock funds. Fossil Free Funds
Deforestation Free Funds (part of Invest Your Values) lets you evaluate investments on deforestation risk, alongside fossil fuel data. Deforestation Free Funds
How to use them:
- Go to FossilFreeFunds.org
- Search by fund name or ticker.
- Review its exposure to fossil fuel companies and carbon intensity.
For example, type in VOO or any other S & P 500 tracking mutual fund or exchange traded fund, you will see:
- Grade, in this Case D, for this metric along with a link to As You Sow’s Methodology
- The exposure in Billions
- The number of violating stocks
- Percentage of assets flagged
- Investments in major fossil fuel companies
- Sector breakdown of violating holdings
Beyond greenwashing a values report card
You likely have concerns beyond one environmental or social issue. The Invest Your Values suite includes tools to evaluate funds for fossil fuels, deforestation, gender equality, gun-free status, prison-free status, and more. It provides a “report card” for each issue. Once you have used FossilFreeFunds or DeforestationFreeFunds, simply scroll down on the page where you will see a complete score for all the metrics that As You Sow tracks.
This allows you to assess whether a fund aligns with multiple values, not just environmental or climate-related ones.
Anti-greenwashing: Proxy voting and shareholder advocacy
Auditing your ESG investments shouldn’t stop at what a fund owns, you also need to examine how that fund votes. When you invest through a mutual fund or ETF, the fund manager usually casts proxy votes on your behalf at shareholder meetings. These votes impact decisions on climate policy, board diversity, executive pay, and more. I’ll highlight this further using Green Century Mutual Funds as an example. The Green Century Funds are a family of fossil fuel-free mutual funds. They are the only mutual fund company in the U.S. wholly owned by environmental and public health nonprofit organizations.
Proxy voting allows a firm to express its views but relies on other shareholders, like Green Century, to identify an issue and get shareholder resolution on the proxy ballot. Mutual Fund firm Green Century votes its 600 proxies in-house according to sustainability guidelines. They publish their proxy voting criteria and voting record online.
Speaking to companies to gather information, analyze a holding, or express a concern, are forms of shareholder engagement. It does not always mean advocating for a change. Green Century engages companies to:
- Evaluate a company’s understanding of relevant environmental issues and risks they have identified.
- Ensure implementation of a commitment that Green Century secured.
Pressing companies to make changes to their environmental policies and practices is the key part of their shareholder advocacy. Green Century advocates for companies to:
- Adopt needed environmental policies in their operations.
- Change sourcing standards, such using more renewable energy.
- Implement stronger environmental practices in their supply chains.
Some “ESG-branded” funds have strong voting records that support environmental and social progress. Others may still vote against resolutions aimed at racial justice, climate risk disclosure, or workers’ rights; even while marketing themselves as sustainable.
To evaluate a fund’s voting behavior, visit the As You Sow Proxy Voting Tracker. This tool can help you determine whether your fund is engaging in real shareholder advocacy, or greenwashing from the sidelines. If your fund votes in ways that contradict your values, consider switching to fund families that prioritize ethical stewardship and accountability.
Sustainability Mandate: A counter to greenwashing
Not all funds that advertise as “green,” “eco-conscious,” or “ESG-screened” actually have a formal sustainability mandate. Some mutual funds and ETFs include the word “sustainable” in their name or marketing materials, but do not follow a disciplined or transparent ESG strategy. These funds may hold major polluters or companies with significant deforestation exposure; despite their branding.
A 2023 academic analysis (sadly no longer available for download) found that more than 30% of ESG-labeled funds had no ESG-specific prospectus language or only vague environmental screens. Without a defined investment policy, these funds can shift strategy at will, exposing your portfolio to greenwashing risks.
To verify whether a fund has a formal mandate, review its:
- Prospectus or Statement of Additional Information (SAI)
- Screening methodology and exclusions
- Impact reports or stewardship disclosures
If you don’t see a clearly documented ESG process, or you find vague language like “we may consider environmental factors”, it’s best to be skeptical.
Beyond Greenwashing and Toward Impact
YourStake introduced the “NoScore” data approach in 2020 to offer a transparent alternative to traditional ESG data without relying on one-size-fits-all scores or complex ratings. YourStake is founded and registered as a Public Benefit Corporation (PBC) with a mission to align client values with investments.
Co-founders Gabe Rissman and Patrick Reed met as student environmental advocates at Yale, working to persuade the endowment to shift away from fossil fuel investments.
YourStake now powers multiple Indexes using this unique data process including the Adasina Social Justice Index. In 2021, they launched the first client-friendly portfolio impact reports. In order to access these reports, you will need to find an advisor that subscribes to YourStake. You may find such an advisor among the InvestmentNews Excellence Awardees or the First Affirmative Network (A values-based financial network that currently partners directly with YourStake).
Final Greenwashing Thoughts
There are privately and publicly available tools to help you evaluate greenwashing. Consider things like Shareholder Advocacy and Sustainability Mandates in your personal selection. Rolling your retirement funds into an IRA gives you more agency to select investments that best align to your values.
If you have been exposed to propaganda that says ‘investing in your values will lower your returns’, take a look at my previous article: “Social Values-Adjusted Investment Returns” where I explore values-based returns vs. non-values returns.
Don’t be a victim of greenwashing. If it is important for your money to align with your values, be confident that you have investment alternatives available to you.