Greenwashing.
In plain English
Greenwashing is a gap between claim and substance, where the environmental or social language attached to a product, a fund, or a corporate report promises more than the underlying facts and disclosures support. In consumer products it looks like a vague label such as eco-friendly with nothing behind it. In investing it looks like a fund name or brochure implying a sustainability mandate the portfolio does not follow. Securities regulators treat materially misleading statements about a fund's strategy as a disclosure problem, and fund naming rules exist to tie a name to what the fund actually holds. The check is always the same: compare the marketing language against the holdings and the prospectus.
01Why it matters
A greenwashed fund can charge a premium fee for a portfolio that looks much like a cheaper broad index, so you pay extra for a label rather than for a different set of holdings.
02The math, step by step
A fund named for clean energy charges 0.70 percent while a broad index fund charges 0.05 percent. If 85 percent of its holdings match the index, the extra 0.65 percent on $30,000 is $195 a year for a 15 percent difference.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
A sustainability fund can legitimately own big familiar names if its method scores them well and it says so plainly. Greenwashing is the mismatch between what the marketing promises and what the documents disclose. The offense is the claim, not the holding.
04Receipts
Every figure on this page is sourced to a primary document. Tap to open the original.
Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice