What is greenwashing in investments?

Greenwashing is where fund managers, or others, mislead potential investors by making false or exaggerated claims about a company's or fund's environmental standards¹. It is not a single offence with a single penalty. It is a description of a gap between how green an investment is made to sound and how green it actually is, and the rules that bite on it are the ordinary ones about misleading claims, plus a specific anti-greenwashing rule for FCA-authorised firms.

The practical question for anyone holding, or considering, a green fund, pension or ISA is what a label actually promises. The FCA's sustainability labels are the strongest signal available: a fund using one must have a sustainability objective that is clear, specific and measurable and included in the product's investment objectives², and at least 70% of the investments in a sustainability-labelled fund must meet the sustainability objective set out by the fund's manager³. The term ESG carries no such threshold, and the requirements for using it are not as strict as they are for "sustainable"³.

Greenwashing means overstating how green an investment is

The definition is broad on purpose. It covers a fund manager talking up a fund's environmental standards, but also anyone else making the claim, including a company describing its own activities¹. What makes a claim greenwashing rather than merely optimistic is that it is false or exaggerated: the fund is presented as doing more for the environment than the evidence supports.

That matters because green investing is an umbrella term rather than a single product. Ethical investing is an umbrella term for all approaches to investing that consider ethical values as well as financial returns³, and the range of approaches inside it is wide. A fund that screens out certain industries, a fund that invests in companies improving their environmental performance, and a fund that holds government green bonds are all described as green, and they do quite different things.

The UK government itself issues green gilts, where the proceeds are directed towards a range of environmental projects³, and NS&I's Green Savings Bonds come with a reporting commitment: the Government will publish details about how the money is being spent and what the environmental benefits are⁷. Those are examples of a claim that can be checked against published information, which is the practical test a reader can apply to any green claim.

How greenwashing shows up in funds, pensions and ISAs

The wrapper an investment sits in does not change whether the underlying claim is accurate, but it changes who is making it and what you can do about it.

Funds. A fund's green character is set out in its own documents, and the label it uses is the clearest signal. Funds using a sustainability label must have at least 70% of investments meeting the manager's sustainability objective³, so the remainder can sit outside it. A fund described only as ESG has no equivalent floor³.

Pensions. In a defined contribution workplace pension, your employer chooses a pension provider to invest your pension contributions⁸. The investment approach therefore sits with the scheme and its provider, not with you, unless the scheme offers a choice of funds. The Pensions Regulator takes reports about employers or workplace pension schemes involved in wrongdoing in an area it regulates⁹.

ISAs. A stocks and shares ISA is where the money you put in is invested on the stock markets¹⁰, so the same green claims apply as in any other fund holding. An investment platform lets you hold investments inside tax-efficient wrappers including ISAs, self-invested personal pensions and a general investment account¹¹, and the platform's fund list is where the labels and documents appear.

Checking an investment's green claims before you buy

There is no single register of green claims, but the documents that come with a fund do most of the work. A fund using a sustainability label must have a sustainability objective that is clear, specific and measurable and included in the product's investment objectives², so the objective should be findable and specific enough to test. If a fund is described as ESG rather than sustainable, the requirements for using the term are not as strict, and ESG-labelled funds do not need a specific sustainability objective in mind as the sustainable label funds do³.

The five labels do different jobs, and knowing which one a fund uses tells you what it is claiming:

Two further checks are worth making. First, whether the fund's own summary discloses any benefits the manager receives from investing in other funds it runs: where a fund invests in funds managed by the same person, the product summary must disclose any actual or potential benefits to that person arising from the investment¹². Second, whether the claim is about the fund or about the companies inside it, since the definition of greenwashing covers claims about a company's standards as well as a fund's¹.

What the rules say about green claims on investments

The core rule is the anti-greenwashing rule in the Sustainability Disclosure Requirements. It clarifies that the sustainability-related claims made by firms must be fair, clear and not misleading⁴, and it applies to all FCA-authorised firms who make sustainability-related claims about products and services².

The Government considered going further. It decided not to add misleading environmental claims to its banned practice list, taking the view that such claims are already against the law, and said it would keep the banned practice list under review and add to it if necessary¹³. So the position is that greenwashing is dealt with through existing misleading-claims rules plus the anti-greenwashing rule, rather than through a separate prohibition.

Where a firm's claim is not fair, clear and not misleading, the consequences run through the ordinary complaints system rather than a green-specific penalty. The Financial Ombudsman Service can look at cases where a consumer was advised to make an investment that was not right for them, or was misled or misinformed about an investment product⁶.

Are green investments riskier than other investments?

A green label says nothing about risk, and the risks are the ordinary ones. Investment trusts are more risky than bank savings accounts but offer the chance of a growing income and potentially capital growth too¹⁴, and they can borrow money to make additional investments, which is called gearing; the more an investment trust borrows the more risky it is¹⁵. Venture capital trusts are typically very high-risk investments, where losses could eclipse tax savings¹⁶. With investments generally, you could get back less than you invest¹⁷.

The same applies to structured products marketed with a green angle. The risk involved with a capital protected structured investment is similar to investing in the stock market and greater than an ordinary savings account¹⁸. A capital-protected label describes the terms of the product, not the safety of the underlying investment.

A green label does not change where the risk sits.

Where to complain if you think you were misled

The route is the same as for any investment complaint. Complain to the firm that sold you the investment first. If you are unhappy with its response, the Financial Ombudsman Service can look at cases where you were advised to make an investment that was not right for you, or were misled or misinformed about an investment product, lost money because of administrative errors, or were overcharged⁶. The same service covers complaints about savings endowments where you were given the wrong investment advice or misleading information¹⁹.

For a stocks and shares ISA, the ombudsman's investment complaints cover ISAs where the money is invested on the stock markets¹⁰. Complaints volumes give a sense of scale: 42 complaints about investment trusts were opened in the first quarter of 2026/27²⁰.

Some products carry a cancellation right that sits alongside the complaints route. NS&I Green Savings Bonds can be cancelled within the first 30 days, and NS&I refunds the money plus any interest earned within 14 days of cancellation²³. That is a product term, not a remedy for greenwashing, and it does not apply to funds held in an ISA or pension.

Where FSCS protection stops

The Financial Services Compensation Scheme covers a range of financial products if a UK-authorised financial firm fails, including deposits, insurance, investments, pensions, mortgage advice and certain other regulated services²⁴. For investments, the limit is £120,000, but that protection does not cover losses from your actual investments: it is the company holding your investments that is covered⁵.

That distinction is the one that matters most for greenwashing. If a fund's value falls, or a green claim turns out to have been overstated, FSCS protection does not respond, because the loss is a loss on the investment rather than a failure of the firm holding it. The remedy for a misleading claim is a complaint to the firm and then the Financial Ombudsman Service⁶, not a compensation claim against the scheme.

Where a firm has failed, the position is different and the FSCS route applies in the ordinary way. The scheme's investment protection guidance sets out how claims work when the firm itself has gone under²⁵.