While this trend is promising, it's important to know that not all green investments are created equal. Some companies exaggerate their environmental efforts to attract more investors in a practice called greenwashing.

Here are four ways for you to avoid being misled and invest in companies that are genuinely making a difference:

Check the track record and ESG rating

One of the easiest ways to spot greenwashing is to look at a company's track record and ESG (Environmental, Social and Governance) ratings. Companies that have a long history of polluting the environment or exploiting workers but suddenly start touting their green credentials should be assessed with scepticism.

Similarly, companies that claim to have high ESG ratings but provide little evidence to back them up should also raise red flags. Use third-party ESG ratings providers like MSCI or Sustainalytics to check a company's sustainability record and ensure that you put your money in the right place. One important box to check off is whether a company’s green initiatives have been reviewed and assessed by a reputable external review provider or meet international standards.

 

Look beyond the surface

Greenwashing often involves flashy marketing slogans and imagery that suggest a company is more environmentally-friendly than it may actually be. Buzzwords such as “sustainability” and “carbon neutral” are common but may not always be an accurate representation of actual efforts.

A big trend among companies is to market their products as biodegradable and compostable – however, these products often take many years to break down or can only biodegrade under specific conditions. Additionally, plastic alternatives touted as biodegradable may not actually be more environmentally-friendly since most trash is incinerated here in Singapore.

With these in mind, investors should look beyond branding and dig deeper into a company's practices and policies on reducing its emissions and environmental impact.

Certification labels, such as B-Corporation, Fair Trade, Roundtable on Sustainable Palm Oil (RSPO) and Forest Stewardship Council (FSC) can help you ascertain a company’s actual environmental commitments too.

Investigate the value chain

Another way to spot greenwashing is to evaluate a company's entire value chain, from its suppliers to its end products. A company may claim to be environmentally friendly, but if its suppliers engage in unsustainable practices or its products have a short lifespan and contribute to waste, then the sustainability claims may be exaggerated.

Some companies you should clearly avoid include tobacco and weapons’ manufacturers, as well as those that breach human rights and labour standards.

Constant review

Investments have to be reviewed regularly. One important thing to note is that a company’s greenwashing activities may not have been exposed at the time of your initial investment. Review your investments at least once a year to ensure the companies you invest in continue to meet ESG standards.

Green investing can be a powerful way to make a positive impact on the environment and society. However, vigilance and diligence are necessary to spot greenwashing, and help you put your money where it is worth.