The rise of what became known as Ethical Investing was a real feature of the latter years of my career. In the early years folk weren’t sure how important it was going to be, nor was there any early governance on what Ethical Investing actually comprised. What make one product or service ethical and another not? As a result there was – in the early days at least – what can only be charitably described as ‘enthusiastic marketing’ which sought to capture the early appetite. This coined the term ‘Greenwashing’. That activity still exists to a greater or smaller degree today. Here I try to unravel what greenwashing is in investment funds, and how you can spot and avoid it.
A fund called “Sustainable Global Leaders” with Shell, ExxonMobil, and a major arms manufacturer in its top twenty holdings. Another fund marketed as “ethical” that turns out to hold roughly the same companies as its conventional sister fund, just with slightly different weightings. A “climate-conscious” portfolio with 6% in fossil fuel extraction.
These are composite examples, but they reflect patterns that have shown up repeatedly in funds available to UK retail investors over the past few years, and they’re the reason “greenwashing” has become a permanent feature of the conversation around ethical investing. The marketing makes claims the actual holdings don’t support, the labels promise more than they deliver, and ordinary investors trying to put their money somewhere that matches their values end up holding things they would have rejected if they’d looked closely.
This post is the practical guide to seeing through it. The good news is that greenwashing is usually visible to anyone willing to spend twenty minutes with a fund factsheet. The harder news is that most people don’t.
What greenwashing actually looks like
The word “greenwashing” gets used loosely. In the context of investment funds it covers several distinct practices, and it helps to be specific about which one you’re looking at.
The first and most common is branding overreach. A fund renames itself to add words like “sustainable”, “responsible”, “future”, or “transition” without making meaningful changes to what it holds. The brochure changes; the portfolio doesn’t. Several large UK fund managers did this between 2018 and 2023, and while the new FCA rules (more on those later) have constrained the worst examples, the pattern hasn’t disappeared.
A second pattern is selective screening. A fund excludes one obviously controversial sector (tobacco, perhaps, or controversial weapons) while keeping exposure to others that might trouble its target audience just as much (fossil fuel extraction, gambling, predatory lending). The exclusion list is technically real but suspiciously narrow.
A third is best-in-class within bad sectors. The fund holds the “best” oil major rather than the worst, on the grounds that the best is moving in a positive direction. Done well, this is a genuine transition strategy, and the FCA’s “Sustainability Improvers” label exists precisely to support it. Done badly, it’s a way to keep portfolio exposure to industries that many ethical investors specifically want to avoid, dressed up in transition language. The difference comes down to evidence: is the company actually changing, on what timescale, and against what the fund manager is prepared to disclose? An investor who wanted out of fossil fuels entirely may end up holding BP rather than ExxonMobil and not realise that’s the choice being made on their behalf.
A fourth, harder to spot, is theme-washing. A fund attaches itself to a popular theme (clean energy, water scarcity, gender equality) but defines membership of that theme so loosely that conventional companies qualify. A “clean energy” fund that holds large stakes in conventional utility companies because they have a renewable division. A “gender equality” fund whose main qualification criterion is having more than two women on the board, which most large companies now have.
None of these is illegal. Most aren’t even technically misleading, once you’ve read the small print. But the gap between what the marketing implies and what the fund actually does can be wide, and ordinary investors who buy on the strength of the label are routinely surprised when they look at the holdings.
The FCA’s attempt to fix it
The Financial Conduct Authority’s Sustainability Disclosure Requirements (SDR), phased in across 2024 and into 2025, were specifically designed to make this harder. The anti-greenwashing rule came into force in May 2024, the four formal investment labels (Sustainability Focus, Sustainability Improvers, Sustainability Impact, Sustainability Mixed Goals) became available from July 2024, and the naming and marketing rules took effect from April 2025 after a period of transitional flexibility. The regime is also being extended to portfolio management services.
A fund that wants to use words like “sustainable”, “ESG”, “green”, “ethical” or several others now has to either qualify for one of the four labels (which involves real disclosure obligations) or include qualifying language explaining that the fund doesn’t claim a sustainability label.
This has helped. Some of the most blatant examples of branding overreach have been cleaned up. Funds that couldn’t meet the criteria have either rebranded away from sustainability language entirely or accepted the additional disclosures.
But the rules haven’t ended greenwashing. Several patterns persist. Some funds use the labels but interpret the criteria liberally, particularly the “Improvers” label, which allows funds to hold companies that aren’t currently sustainable on the basis that they’re moving in the right direction. The interpretation of what counts as credible improvement varies a lot. Some funds retained their existing portfolios and simply added qualifying language to their marketing rather than changing what they hold. And the labels themselves don’t tell you what a fund’s exclusion criteria are or what its actual holdings look like, only that it meets a regulatory threshold.
Reading the label is a starting point. It’s not enough on its own. Let me show you what I do.
How to actually check a fund
The single most useful thing you can do is read the actual holdings. Every UCITS fund (which is most funds available to UK retail investors) is required to publish its top ten holdings monthly, and most publish their full holdings list quarterly or semi-annually. The information is usually buried in the fund’s factsheet or its Key Information Document (the KID, which has replaced the older KIID for most UK retail investors).
What to look for:
The top ten holdings tell you most of what you need to know. If a fund is marketed as sustainable and its top ten holdings are Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, Tesla, and three other mega-caps, you’re looking at something very close to a conventional global equity tracker. There may still be exclusions further down the holdings list, but the main exposure is mainstream.
The sector breakdown is usually disclosed too. A fund claiming environmental focus that has 8% in fossil fuels and 4% in mining is probably not what its name suggests. A fund excluding controversial industries should show 0% or close to 0% in those sectors.
The exclusion criteria document, if the fund has one, lists what’s excluded and at what threshold. Pay attention to thresholds. “Companies deriving more than 10% of revenue from fossil fuel extraction” is a much weaker exclusion than “companies with any fossil fuel extraction activity”. The first allows companies to hold meaningful fossil fuel businesses as long as it’s not most of what they do. The second does what most ethical investors think exclusion means.
The OCF (annual cost) is worth checking too. Genuinely actively managed sustainable funds are often more expensive than ESG-screened trackers, which is fine if the active management is producing real value. If you’re paying 1.2% for what is essentially a global tracker with a few names removed, you’re paying a substantial premium for a small change.
This sounds like a lot of work. It is, the first time. After you’ve done it once or twice, you’ll spot the patterns within a couple of minutes, and you’ll be much harder to fool.
If you do nothing else before buying a fund that markets itself on sustainability, pull up the latest factsheet and check four things: the top ten holdings (do they match the story the name tells?), the sector breakdown (any exposure to sectors you’d expect to be excluded?), the exclusion thresholds rather than just the headline list, and the OCF. Most factsheets put all four on the same two pages.
The harder cases
Some of the most common forms of greenwashing aren’t really fund-level problems. They’re problems with how the underlying companies report.
A company can have an excellent ESG rating from one provider and a mediocre one from another, depending on which dimensions are weighted and how. Tesla, for example, has been excluded from some major ESG indices despite making electric cars, because its labour practices, governance, and management of factory accidents have scored poorly enough to outweigh the environmental story. Other ESG indices include Tesla as a flagship green holding. Same company, opposite outcomes.
This isn’t really the fund’s fault. ESG ratings are inherently subjective, and reasonable people can weight the components differently. But it does mean that “this fund only holds high-ESG companies” doesn’t mean as much as it sounds. Which ESG provider, with which methodology, weighted how?
Similarly, a fund that follows a particular sustainability index (MSCI ESG Leaders, FTSE4Good, the Dow Jones Sustainability Index) is only as ethical as the index methodology. Indices change their criteria over time, sometimes in ways that broaden inclusion. A fund that tracked FTSE4Good ten years ago is tracking a meaningfully different fund today, even if the name on the tin hasn’t changed.
The deepest version of this problem is that “good” and “bad” companies are themselves moving targets. Companies the public considered ethical in 2010 (some technology firms, certain consumer brands) have since been recategorised as problematic. Companies that were considered controversial in 2010, particularly some defence firms, are now seen as defensible given the war in Ukraine and the broader security picture. The frameworks shift; your portfolio, if it’s tracking them, shifts with them.
For most ethical investors, the practical implication is to focus less on labels and more on specific concrete exclusions. “I don’t want to hold tobacco” is a clearer test than “I want a sustainable fund”. The first you can verify directly. The second depends on whose definition of sustainable you’re using.
Where to actually look
For a UK retail investor wanting to do this checking properly, the resources worth knowing about:
The fund manager’s own website is the canonical source. Vanguard, HSBC, BlackRock (iShares), L&G, Royal London, and the major active managers all publish factsheets, holdings, and exclusion criteria for each fund. The information is sometimes hard to find, but it’s there.
Morningstar’s website (morningstar.co.uk) provides detailed fund information including holdings, sector breakdowns, and ESG metrics. They also write critical analysis of sustainable funds that’s often more honest than fund managers’ own marketing.
The FCA’s register lets you check that a fund is regulated, though it doesn’t tell you anything about ethics.
Independent sites like Good With Money and Boring Money’s ethical investing section often surface analysis that fund manufacturers wouldn’t.
For readers who want the full plain-English foundation before getting into this level of fund-level analysis, Simple Investing for Absolute Beginners covers how to read a factsheet, what OCFs and exclusion criteria mean, and how to think about fund selection in general.
The investor who spends fifteen minutes per fund before buying will catch most greenwashing. The investor who buys on the strength of the name and a quick scan of the marketing won’t, and will sometimes end up surprised when they later look at the holdings list. There’s no shortcut for this checking, but there’s also nothing about it that requires expertise. It just requires the willingness to look.
New to UK investing and want to understand what’s actually in the funds you might hold? Simple Investing for Absolute Beginners covers the practical mechanics of UK funds, factsheets, and ISAs in plain English. [ Find out more → ]
More from the Simple Investing series
If the beginner book isn’t quite the right fit, the series has titles aimed at specific situations:
- Simple Investing for Women
- Simple Investing for People in Their Twenties
- Simple Investing: Sort Out Your Pension
- Simple Investing for Retirement
- Simple Investing for the Self-Employed
- Simple Investing Guide to FIRE
This article is for information and education only and does not constitute financial advice. Investments can fall as well as rise in value and you may get back less than you invest. Sustainability and ESG fund labelling rules are subject to ongoing regulatory change.