Is social washing the new greenwashing? Here are 3 important things you should know

If you already hold a significant investment portfolio, the chances are you know about Environmental, Social, and Governance (ESG) investing.

ESG credentials can be claimed by companies and funds that make tangible steps towards bettering any or all of these three factors. For example, a company with an action plan to become carbon neutral by 2030 might be recognised as ESG-friendly.

Although the rise of ESG investing has already had a significant impact on markets – 89% of investors consider ESG issues as part of their investment approach, Bankrate reports – strict regulation is yet to be introduced when it comes to specific ESG criteria.

So, unfortunately, some companies have been accused of “greenwashing” – meaning they make surface-level claims about their environmental efforts, without any real work being done behind the scenes.

While you might be familiar with the concept of greenwashing, there is a new iteration of it on the rise: “social washing”.

As an investor with an interest in ESG causes, you might be looking to invest your money in funds that make a positive social difference – not just ones who say they do.

If so, read on to learn three important things investors should know about social washing.

1. The “social” side of ESG investing focuses on the human impact

The “social” side of ESG investing covers funds and companies that put some of their wealth into human initiatives. These efforts might include:

• Education programmes in developing nations
• Investing in clean water for remote villages and towns
• Local community engagement
• Ensuring safe labour conditions and fair pay for workers in global supply chains
• Volunteering schemes that give staff time off to spend time with a local charity
• Equality schemes, including those designed for women, people of colour, and members of the LGBTQ+ community.

If these issues are close to your heart, you may wish to focus on them when creating your investment portfolio.

Alongside your financial planner, you can find funds and companies committed to social causes that may be the perfect addition to a diversified portfolio that helps meet your long-term goals.

2. “Social washing” means companies could perform allyship to a cause, without any work going on behind the scenes

Despite the amazing work being done by some companies, social washing involves institutions performing allyship towards minority groups, or any other group included in social initiatives, rather than actively helping them.

Indeed, once you notice the signs of social washing, you may realise just how prevalent this issue really is.

The Guardian reported a recent example:

Nike featured Serena Williams in its latest campaign – but has come under fire for failing to provide maternity leave to another athlete they sponsor.

In September 2022, Nike released a new campaign: Serena Legacy.

In the ad, clips of Williams – a world champion female tennis player who has often been criticised for her outspokenness – play alongside a voiceover: “When the world wanted her to be less powerful, she hit even harder.”

While on the surface of things, this ad is nothing but empowering for women of colour, Nike’s behaviour behind the scenes tells a different story.

Indeed, in 2019, Nike-sponsored runner Alysia Montaño criticised the company for refusing to give her paid maternity leave, the New York Times reports. With gross profits of more than $39 billion in the same year, their lack of internal support for Montaño (while publicly hailing women’s empowerment in sport) speaks volumes.

Investment Week reports that the Financial Conduct Authority (FCA) are beginning to “clamp down on social washing”, but as yet there are no regulatory rules stopping companies from using advertisements to demonstrate social awareness, while acting the opposite behind closed doors.

So, as an investor, it is crucial to look beyond the optics and identify the true social efforts being made by companies or funds you support with your wealth.

3. Working with a financial planner can help investors put their money into funds making a real difference

As the FCA continues to strive for more stringent regulation, investors may find that funds with action behind their promises perform more favourably in the long term.

Social washing can muddy the waters when it comes to actual ESG credentials. And, of course, past performance is not a reliable indicator of future performance, and the markets are never truly predictable. So, just like any other investment, researching genuinely ESG-friendly funds and investing in them doesn’t mean you are more likely to see positive returns.

However, in a world that is increasingly focused on real change instead of empty platitudes, putting your wealth behind companies that practise what they preach could be a great place to start.

Here at Aspira, we can help you:

• Identify the ESG causes close to your heart
• Perform due diligence on the companies and funds that seem to fit into your criteria
• Create an investment strategy that aims to meet your long-term wealth goals
• Actively invest in funds that meet your ethical standards.

With an experienced professional by your side, you can rest assured that you are investing your wealth in institutions that put their money where their mouth is.

Get in touch

For a chat about ESG investing, or any other financial matter, email info@aspirafp.co.uk or call us on 01454 632 495.

Please note:

The information contained in this article is based on the opinion of Aspira and does not constitute financial advice or a recommendation to any investment or retirement strategy.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.