Green Finance Advisor of Friends of the Earth (HK)


Greenwashing has become a significant concern in the investment management industry, with institutional investors and investment professionals identifying it as a challenge in the ESG investment process. Greenwashing refers to instances where investors may be confused or potentially misled about the sustainability characteristics of a fund, creating a perception of greenwashing. The following aims to analyze investment funds’ disclosures related to environmental, social, and governance (ESG) information and identify the issues that contribute to the perception of greenwashing, ultimately promoting disclosure best practices to enhance market integrity.

Key Findings:

The analysis of product disclosures for a sample of 60 investment funds marketed to retail investors revealed several instances that could confuse investors and create a perception of greenwashing. Inconsistent disclosures, omissions of key information, unsubstantiated claims, and exaggeration of certain features were identified as primary issues. However, greenwashing is challenging to uncover solely based on documentation, as access to internal records and third-party research is often necessary. The context-specific nature of greenwashing risks also makes it difficult for investors to understand how ESG factors are incorporated into a fund’s investment process. This emphasizes the need for consistent product disclosure standards to enable better comparability. Problematic disclosures related to fund names, screening criteria, fund reporting, ESG terminology, and impact claims were observed, and recommendations were developed to address these issues.

Literature Review:

Existing literature on greenwashing in investment products primarily focuses on corporate greenwashing rather than the specific issue of greenwashing in mutual funds addressed here. However, a study analyzing ESG mutual funds found clear differences in fees, average ESG ratings, and portfolio-company votes between ESG and non-ESG funds. Another study highlighted the risks to retail investors arising from misinformation and poor investment outcomes resulting from greenwashing. The ambiguity surrounding the definition of ESG funds and achieving sustainability impact contributes to the susceptibility of funds to greenwashing allegations.

Implications and Recommendations:

Greenwashing poses significant risks to investor trust and confidence in the investment industry. To maintain fair and efficient capital markets, protect investors, and hold investment firms accountable, it is crucial to address greenwashing concerns. The paper emphasizes the importance of promoting disclosure best practices for sustainable investment funds to enhance investor trust in the sustainability characteristics of these products. The recommendations include improving disclosure quality, ensuring consistency in disclosures, providing comprehensive information about sustainability goals and strategies, substantiating sustainability claims, and avoiding undue emphasis on certain features. Thorough due diligence by investors is essential to gain assurance that fund managers are accurately representing the sustainability characteristics of their funds.


Greenwashing risks in investment fund disclosures can undermine investor trust and confidence, leading to misallocated assets and reputational damage for investment firms. This article highlights the challenges posed by inconsistent disclosures, omissions, unsubstantiated claims, and exaggeration in fund disclosures, which contribute to the perception of greenwashing. By promoting disclosure best practices and implementing recommendations, the investment industry can enhance market integrity and address investor concerns. Thorough due diligence by investors is crucial to ensure alignment between a fund’s marketed sustainability characteristics and its actual practices. By addressing greenwashing risks, the industry can foster fair and efficient capital markets while protecting investors and fulfilling broader sustainability objectives.


An Exploration of Greenwashing Risks in Investment Fund Disclosures: An Investor Perspective