What is 'greenwashing'?

Greenwashing refers to the practice of providing misleading information about a company's environmental practices or the environmental benefits of a product. This term derives from the concept of "whitewashing," where the aim is to make something appear better than it is. Companies that engage in greenwashing often exaggerate or fabricate their sustainability efforts to present themselves as more environmentally friendly than they actually are. This can mislead consumers who want to make ecologically sound choices, as they may inadvertently support companies whose operations are not as sustainable as advertised.

Understanding greenwashing is crucial in the ESG domain, as it highlights the importance of transparency and authenticity in corporate environmental claims. This practice undermines genuine sustainability efforts by creating confusion and eroding trust among consumers and stakeholders, making it essential for analysts and investors to critically evaluate the authenticity of environmental claims made by companies.