Greenwashing: The New Due Diligence Blind Spot Investors Can’t Afford To Ignore

Sustainable investing is booming. Morgan Stanley claims in their 2025 Sustainable Signals report that 88% of global investors say that they are interested in sustainable investing. Environmental, Social, and Governance (‘ESG’) funds, impact investing, and “green” portfolios are attracting billions in capital each year. Each provide a financial promise as well as positive environmental, social, and governance impact.^{[1] [2]}

However, beneath the headlines declaring a positive change, a growing problem lurks. Greenwashing. Although the term was coined 40 years ago, it has gained prominence since ESG has come to the forefront of everyone’s minds as climate change begins to impact daily lives.

Greenwashing occurs when companies or funds make sustainability claims that overstate or misrepresent their environmental or social impact.^[3] Greenwashing has evolved to become a financial and reputation risk to any investors or associated companies. Recent high-profile examples demonstrate that the consequences of companies participating in greenwashing can be significant.

In April 2025, German prosecutors fined DWS, Deutsche Bank’s asset management arm, €25 million for misleading investors about the sustainability of its funds. From mid-2020 to early 2023, DWS promoted itself as a “leader” in ESG investing, claiming that ESG integration was “at the heart of its DNA” and that its funds were benchmarks in sustainability. These statements were relied on by investors who would have considered the claims when allocating capital to DWS’ ESG-branded products.^[4]

However, in 2025, regulators concluded that DWS’s statements “did not correspond to reality.” The €25 million fine was the second such issued to DWS who were also charged US $19 million in 2023 for making misleading statements about how it incorporated ESG factors into its research and investment recommendations.^[5]

More recently, on 23^rd October 2025, a French court ruled that TotalEnergies and its TotalEnergies Electricité et Gaz France, in charge of electricity and gas production, engaged in misleading commercial practices by making claims about its climate commitments that were not backed by “verifiable action“.^[6] The court found that the company had misled consumers by advertising that by buying its products or, services they were contributing to a “low-carbon economy.” According to the court, its public claims created the impression of a fully sustainable transition, which did not reflect reality.^[7] The French court gave TotalEnergies a month to take down the misleading statements or face a fine of €10,000 a day. They were also ordered to post the court’s ruling on its website.^[8]

Both companies were making direct claims about their carbon commitments however, some companies rely on third parties to implement carbon offset projects. These projects include tree planting, renewable energy development, or forest conservation and are touted as being able to “neutralize” their emissions. Although these programmes may offer certain environmental advantages, studies have revealed that many offset projects do not achieve the intended outcomes. A nine-month joint investigation in 2023 by the Guardian, Die Zeit and Source Material found that more than 90% of the carbon offset projects from the world’s largest carbon standard, Verra, were “bogus“.^[9]

A more recent study by Corporate Accountability demonstrated that the projects may not have improved. The company researched 27 of the “largest carbon offset projects” in 2024 and found that 80% of the offset credits that companies claimed to have “used” to neutralise their emissions were probably not actually reducing as much CO₂ as they claimed.^[10]

Globally, regulators are clamping down on misleading environmental claims. Non-compliance can result in fines, reputational damage and enforcement action.

To mitigate greenwashing risks, investors and advisors must go beyond surface-level ESG disclosures and take the steps to investigate the company’s practices. Quintel examine all aspects of an investment with regard to ESG criteria, analyse the efficacy of the projects and seek to obtain proof of the carbon schemes working. The outcome of these investigations assist the investor in their decision-making process and give them confidence that they will not be misleading their customers if they publicise their ESG commitments. Quintel’s Due Diligence services are described here.