Sustainable investment has gained momentum, with many eager to align their money with their values. However, an increasing number of investment funds and pension products are marketed as being ‘ethical’, ‘green’ or ‘environmental, social and governance (ESG)’, with ‘high-severity’ cases of greenwashing rising by 114% in 2024.
Greenwashing refers to the practice of exaggerating or falsely claiming environmental or social responsibility. In the investment world, it can mean savers unwittingly support funds that fail to live up to their sustainable promises, whether by investing in fossil fuels or lacking measurable impact goals.
According to the experts at Claim My Loss, the financial and ethical costs of greenwashing are far from harmless. As regulations evolve and financial products are forced to meet stricter sustainability standards, some investors are discovering that the “eco-conscious” funds they once trusted and were led to believe were ethical weren’t so clean after all.
“Greenwashing isn’t just a marketing issue, it’s also a form of financial misrepresentation,” says Jon Paton of Claim My Loss. “People are actively trying to do good with their money, especially as the world becomes more eco-conscious in the face of global warming. But, without proper transparency and regulatory enforcement, they can end up financially worse off, while the institutions in question walk away untouched.”
So, how can you spot the difference between a genuinely green fund and one that just looks the part? There are three simple tips to help you invest with confidence.
1. Look Beyond the Label
Generic terms like ‘green’, ‘ethical’ and ‘ESG’ are not regulated guarantees. This means that while they may sound reassuring, they don’t always reflect how a fund operates in practice, and their vague nature means unethical businesses often hide behind them.
Under the Sustainability Disclosure Requirements (SDR) in the UK, which came into force in April 2025, regulated providers will only be able to use four approved sustainability labels:
- Sustainability Focus
- Sustainability Improvers
- Sustainability Impact
- Sustainability Mixed Goal
If a fund uses one of these labels post-2025, it will be subjected to strict transparency and performance criteria. Until then, those investing should always ask to see a full breakdown of where their money is going, including company names, sectors, and exclusions.
2. Demand Transparency
Genuinely sustainable funds should be able to explain three key actions:
- How they select investments
- What ESG factors they prioritise
- What measurable goals or impact indicators they track
Watch out for unclear and jargon-heavy language. If the fund’s documentation is full of buzzwords but light on substance, it could be trying to confuse rather than clarify.
“Transparency is key,” Paton explains. “Without it, you can’t know whether your money is supporting the values you care about, or funding the very industries you’re trying to avoid.”
3. Check for Credentials and FCA Authorisation
Before investing in a fund, you should verify that the fund provider is authorised by the Financial Conduct Authority (FCA). You can search the FCA register online.
In addition, look for independent ESG certifications, such as:
- Carbon Neutral Britain
- Green Business Benchmark
- UN PRI signatory status (Principles for Responsible Investment)
These certifications don’t guarantee performance, but they do indicate a stronger commitment to the ESG standard to facilitate additional accountability.
What If You’ve Already Been Misled?
As the FCA’s SDR and the EU’s SFDR (Sustainable Finance Disclosure Regulation) continue to roll out, several major asset managers, including BlackRock, Legal & General, and HSBC, have already downgraded or reclassified funds. These previously carried sustainability claims, indicative of greenwashing.
If you, or anyone you know, invested in a fund marketed as sustainable and it later turned out to be misaligned with its promises – or you accepted lower returns based on false claims – you may have been mis-sold your investment product.
“Clients who made decisions based on sustainability goals that weren’t upheld may have grounds for redress,” says Paton. “That could include compensation under misrepresentation law, or even a breach of contract if specific ESG commitments were outlined in fund documents and not delivered. We believe that fund providers who have misrepresented the ethical status of their products are culpable of misrepresentation. At a minimum, they should refund any fees charged to clients under false pretenses. Furthermore, if clients have incurred greater financial losses by transferring from higher-performing funds based on these misrepresentations, it is incumbent upon the fund providers to compensate them, restoring clients to the financial position they would have been in had they remained with their original investments.”
Claim My Loss provides regular updates on the status of sustainable fund claims via the website knowledge base, where consumers can subscribe for regular updates.
Claiming Financial Redress
Claim My Loss helps affected investors pursue compensation through a free, no-obligation assessment. From gathering evidence and reviewing fund documents to escalating claims for compensation, we offer no win, no fee support, ensuring people who tried to do the right thing aren’t penalised for it.
