Greenwashing, greenhushing and greenwishing: The new sustainable finance lingo | Investment Executive

“The majority of Canadians want new rules to clear out greenwashing because they’re frustrated by claims not being met with action,” said Julie Segal, senior program manager of climate finance with Environmental Defence Canada. “And a number of financial institutions also want clear rules on sustainable finance, so they can move more clearly in that direction.”

Greenwashing was one of the first terms coined in the sustainable finance discourse, but terms such as greenhushing and greenwishing have since been adopted.

Here’s what the terms mean and how some suggest putting an end to these practices.

Greenwashing

Greenwashing is the practice of making inflated or misleading claims about how environmentally friendly a company, organization or product is, said Yrjo Koskinen, a sustainable and transition finance professor with the University of Calgary’s Haskayne School of Business.

“It’s not necessarily lying, but maybe making exaggerated claims about your environmental or social policies,” he said. “Companies have a tendency of spinning or putting their best foot forward. Everybody does that, right? So, it’s commonplace.”

As Koskinen explained, greenwashing was a niche issue until 2022, when cases began making more frequent headlines in Europe, the U.S. and Canada.

This includes the high-profile case of Keurig Canada reaching a $3-million settlement after the Competition Bureau found the company’s coffee pod recycling claims were false or misleading in certain cases.

In the U.S., DWS Investment Management Americas Inc., a subsidiary of Deutsche Bank AG, agreed to pay US$25 million to settle charges over alleged greenwashing and deficient anti–money laundering controls at its mutual funds. The U.S. Securities and Exchange Commission alleged the firm made “materially misleading statements” about the ESG investment processes used for certain actively managed mutual funds and separately managed accounts.

And earlier this year, the European Commission and national consumer protection authorities started action against 20 airlines for alleged misleading greenwashing practices, among other examples.

The Canadian government’s Bill C-59, which received royal assent on June 20, is one example of the recent crackdown on greenwashing.

The legislation requires companies to provide evidence to support their environmental claims. The government said doing so will “protect consumers, competitors and the proper functioning of the market against the harms of untested representations about a product’s benefits for protecting the environment or mitigating the effects of climate change.”

The legislation has received mixed reactions. It was cited by Pathways Alliance as the reason the group of oilsands companies decided to pull its online content. The group said the provision applies a standard “so vague as to lack meaning.”

Financial services regulators have also made progress in addressing greenwashing.

In March the Canadian Securities Administrators bolstered their guidance for investment funds and fund managers around ESG-related disclosure with the goal of increasing clarity and consistency in fund documentation and sales communications.

Also in March, the Canadian Sustainability Standards Board released its draft standards for climate-related risks and opportunities based on the International Sustainability Standards Board’s standards, but with proposed modifications. The consultation on the standards wrapped last month.

Over the past decade, firms such as Morningstar Sustainalytics have established frameworks for assessing companies’ exposure to industry-specific ESG risks and risk management.

Clark Barr, head of ESG methodology with Morningstar Sustainalytics, said the firm relies not on environmental promises from companies, but rather a thorough picture of their ESG policies, programs and performance.

“This is one of the ways we avoid greenwashing, because it’s not just having a policy in place or making a document. We want to see that [impact] all the way through to the performance level,” Barr said.

Greenhushing

Greenhushing is the practice of deliberately downplaying or hiding sustainability goals, Koskinen said, noting this concept is relatively new compared to greenwashing.

One reason companies may employ this practice is because they’re afraid of being accused of greenwashing, he said. They may think that “there’s always somebody who’s going to blame us — either we do too much or too little, but [we’re] never right.”

And companies can see how politicized the issue has become, Koskinen said.

In a January 2024 analysis from global climate consultancy South Pole, 81% of companies said that communicating their net-zero targets would be good for their bottom lines. However, 58% of the 1,400 companies surveyed — across 14 countries and 12 sectors — said communicating their climate action was now more difficult, and they were planning to decrease their level of external communications.

In the realm of finance, a March 2024 report from private and public equity markets data provider PitchBook Data Inc. suggests that some asset managers are pulling back from public ESG commitments out of fear of backlash, with fewer general partners making public commitments to ESG each quarter over the past few years via the UN-supported Principles for Responsible Investment. Meanwhile, others are leaning in to ESG as a value creation and protection tool in the challenging macroeconomic environment, the report said.

Segal said the concept of greenhushing exists because in Canada sustainability reporting and disclosure standards are voluntary.

“The second something becomes mandatory, it’s no longer a decision that a business or financial institution has to make about whether they are talking about something,” she said.

Greenwishing

Less recognized than greenwashing and greenhushing is greenwishing, which has been described as a company making abstract wishes about “going green” or setting climate targets without taking action.

“Greenwishing sounds pretty much like greenwashing to me. It’s kind of inadvertent greenwashing,” Koskinen said.

Greenwishing is driven by the pressure to set ambitious sustainability goals, KPMG says on its website.

In an article for the Center for Corporate Reporting, which provides guidance on corporate reporting for companies in Switzerland, Germany and Austria, one of the founders of South Pole wrote that greenwishing “ensures that [a] company is seen as a climate leader in the eyes of the public, without running the risk of being accused of greenwashing.”

“After all, you did not make any binding commitments in the first place; you were only expressing your support for climate action and your wishes for a low-carbon future,” the article said.

The way forward

Industry watchers say Canada needs to move toward policies that support the transition to a net-zero economy.

Segal said the country needs to act with greater urgency, given how climate change could affect everything from people’s homes to their livelihoods and the economy.

“We’re seeing increasing climate-related disasters that affect both communities and investment,” Segal said. “Climate-aligned finance policy is the missing piece of Canada’s climate plan,” if it is to align with the country’s commitments under the Paris Agreement.

Segal pointed to Bill S-243, which would hold corporate directors to account for climate action and mandate climate action plans from financial institutions, among other things.

“Requiring the plans that support the commitment is really key in terms of transparency and accountability, and just helping ensure we move in the right direction,” she said.

Koskinen was pleased about Canada following the lead of other jurisdictions, such as Europe.

“Right now, with the new European law, if you advertise a certain ESG investment strategy, at least 80% of your assets have to follow that strategy. That’s a massive, tangible, measurable thing,” he said. “Until the passing of Bill C-59, there was no explicit law against greenwashing in Canada. It was activist groups trying to name and shame, or [the Office of Consumer Affairs] bringing cases against these companies.”

However, Koskinen said the new greenwashing regulations in Canada are “quite vague at the moment.” He said he hopes they will be clarified soon “so that companies have more certainty what is allowed and what is not.”

Barr, of Morningstar Sustainalytics, agrees Canada should look to the European Union as an example as it develops its sustainable finance policies, saying there’s a competitive reason for this as well.

“If you have this whole base of EU customers that are buying products from other businesses and they look at Canadian companies and say, ‘Oh, they’re not taking carbon seriously [so] I’d rather buy from this other company in France,’ that’s a lost opportunity for Canadian business,” he said.

But Barr and Koskinen acknowledged that moving toward a sustainable economy requires time.

Koskinen noted that Europe is less reliant on fossil fuels, whereas oil and gas are Canada’s top exports.

“It’s very difficult to decarbonize our energy system,” he said. “The economy doesn’t change overnight. The new firms are much quicker and agile to change, and some firms can change very fast, but [for] the large legacy companies, it’s going to take time.”

Barr shared a similar remark.

“Sometimes there’s criticism that the regulations aren’t strong enough, or they’re not going quick enough, but at least we’re seeing progress on them. And so it might not be ideal, it might not be perfect, but it is a journey,” he said. “It’s a bit of a marathon, not a sprint.”