What is greenwashing? How you can identify sustainable banking products

Unfortunately, even the humble bank account can fall victim to corporate greenwashing. This means that your ethical financial choice may not be as ‘green’ as you thought it was.  

Making sustainable and eco-friendly choices is a priority for millions of Australians. A 2022 study found that more than four in five Australians expect that their money in super, banks and other investments is being invested responsibly and ethically. However, 72% of those surveyed were concerned their financial providers are engaging with greenwashing, and lying about their green credentials. 

Let’s explore what exactly greenwashing is, how it can occur with your financial products, and how you can protect yourself from aligning with companies that do not practice what they preach. 

What is greenwashing?

Greenwashing is when a company makes their products or services appear to be more environmentally-conscious or sustainable than they actually are. 

The term was first put forward by Jay Westerveld in 1986, and occurs when misleading or exaggerated claims are made about the sustainability of a product or service through its branding, marketing and advertising. The product or service may not actually live up to these claims, nor may the company be changing its business practices or products to meet these standards.

The true key to identifying a company with sustainable practices is transparency. For example, it’s easy for a food company to throw around labels like "eco-friendly" or "organic" on its packaging, while still having a supply chain with unethical practices - particularly those that involve the exploitation of the environment and labour of less privileged communities.

Sometimes companies may even create their own ethical and sustainable certification to enhance the marketing of their products or services to make them appear more environmentally friendly than they actually are. 

It can even be used to distract from greater issues, such as the original usage that Jay Westerveld described when he visited Fiji. A resort Mr Westerveld was staying in was asking customers to reuse their towels to help the resort protect the environment - meanwhile the resort was in the process of expanding and cutting down the area to build more bungalows. 

Unfortunately, greenwashing is not limited to food products and hotel accommodation. It can also be used to mislead Australians into signing up for not-so-eco-friendly products, or choose a provider that espouses environmental causes, while still investing in, say, fossil fuels. 

How does greenwashing occur in personal finance?

The finance industry is not immune to greenwashing. In fact, as more and more Australians push for sustainable products and request their banks and lenders invest ethically, we may see instances of greenwashing grow.  

By understanding how greenwashing commonly occurs in personal finance, you will be better able to identify sustainable banking products. 

Labeling products as ‘green’ while investing in fossil fuels

Greenwashing in your personal finance will most likely come in the form of a bank or lender labeling products as green or sustainable, while still making unethical investment decisions. For example, when it comes to superannuation, a provider may advertise its fund as ‘green’ while still investing in fossil fuels.

MarketForces created the Climate Wreckers Index to help identify the biggest supporters of non-sustainable companies. It has categorised superannuation funds into three categories:

• Whether it has a coal exclusion policy
• Whether it has an oil and gas exclusion policy
• Its exposure to the ‘Climate Wreckers Index’

This Index is made up of 180 publicly-listed global companies with the greatest plans to expand the scale of the fossil fuel industry. It then quantifies a super funds’ percentage of listed equities that support these companies. The research found that while many Australian companies labelled superannuation investment options as green, many still had exposure to industries like coal, oil and gas. 

False claims and misleading language

Just as someone may refer to a food product as ‘green’ and ‘organic’, a bank can use vague language to describe a product to catch the attention of environmentally conscious consumers, without having the metrics or evidence to back up these claims. In fact, international consumer protection groups have estimated the level of false environmental claims from companies is at 40%. 

Many banks and providers are keen to profit on this current trend towards sustainability by exaggerating claims, such as being ‘carbon neutral’. Greenly, a carbon accounting company that helps businesses to be more sustainable, notes that a company’s carbon neutral claims can be “difficult to substantiate and verify”. 

In March, the Australian Competition and Consumer Commission (ACCC) announced it will be investigating a number of businesses for potential greenwashing. This follows an investigation that found more than half of businesses reviewed were making “concerning claims” about their environmental or sustainability practices. 

The ACCC is planning to create strict guidelines around how companies can make statements about their products, including restricting statements to be “clear, defined, limited in their claims, and always have strong verification materials”, with scientific and rigorous processes a key component. 

Poor or inconsistent data and standards

Speaking of strong verification materials, another way that companies can greenwash their financial products is through poor or inconsistent data, standards and certifications around the sustainable claims they are making.  

For example, some organisations may invest their own standards and definitions of ‘green’ or ‘ethical’ financial products. They will then allude to these standards as proof they are meeting perceived requirements around sustainability, however, the company’s definition of sustainability may not meet your own. 

Think of the aforementioned superannuation funds promoting ethical investment options, while still engaging with harmful companies and investing in fossil fuels. By cherry-picking on the positive data and environmental aspects of their investments, they downplay (or even ignore) the negative impacts of having harmful companies as clients. 

What can consumers do to avoid greenwashing?

The good news is that there are practical steps you can take to avoid greenwashing traps and tricks, including:

• Perform an audit on your financial products

It may be worth spending a few hours to go through all your financial products. Take stock of where these banks and providers stack up on websites that critically assess Australian financial institutions and the ethics of their investments, like MarketForces.

• Do your own research 

It’s not enough to trust the words of banks trying to lure you in with claims of ‘green’ bank accounts or ‘ethical’ credit cards. You should always look critically at marketing claims and do your own research on the company’s sustainability policies, as well as evidence of third-party certification, such as the Responsible Investment Association Australasia (RIAA) certification. 

Ask yourself questions like:

1. What is the investment strategy? 
2. Is the information and evidence of sustainability transparent?
3. Are the outcomes being tracked and reported?

• Consider switching to companies committed to sustainability

If you find your chosen products do not align with your morals, it is worth comparing your options and considering switching to more sustainable providers. Two examples of providers who have built ethical investing into their ethos are Bank Australia and Teachers Mutual Bank. 

Bank Australia has a responsible banking policy that states it has not and will never invest in the fossil fuel industry, the live animal export industry, intensive animal farming, animal testing, the arms industry, gambling, as well as tobacco. It is also the first Australian bank to join the Global Alliance for Banking on Values and is a certified B Corporation.

Teachers Mutual Bank has been named one of the ‘World’s Most Ethical Companies’ for nine years in a row, as per the Ethisphere Institute. And in 2022, it was one of only five banks globally to be recognised. It advertises it believes in “transparency, and benchmark ourselves against world leaders in sustainability”, and provides evidence and reporting into these claims.

While these are just two examples of sustainable Australian financial providers, there are many out there. It is crucial that you compare your options across the market to ensure you find a bank or lender that best suits your needs and ethics. 

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