Asset managers have consistently grappled with shifting ESG regulations and navigating complex sustainable landscapes. Most recently, asset managers have reclassified funds from Article 9 (funds with explicit sustainable objectives) to Article 8 (funds promoting environmental or social characteristics). This reclassification comes as a direct result of the increasing pressure of the Sustainable Finance Disclosure Regulation (SFDR) framework.
This shift comes as part of a much broader trend, introducing a new term to the ESG lexicon: “greenhushing”.
The shifts within fund classifications comes as a direct result of growing concerns about greenwashing accusations. But does this mean greenwashing is declining, or simply being replaced by greenhushing?
In this article, we’ll look at exactly what greenhushing is, what it means for asset managers, and whether we are truly seeing the fall of greenwashing?
What Is Greenhushing?
Greenhushing is a term that’s used to describe the deliberate under-reporting, downplaying, and overall keeping quiet on ESG achievements to avoid potential backlash or scrutiny.
The practice of greenhushing has gained traction over the past year, as it allows businesses to take better control over their ESG communications. It is the opposite of greenwashing, which exaggerates or misrepresents ESG efforts, and could be one of the reasons behind the thought that greenwashing cases are reducing.
Motivations Behind Greenhushing
The practice of greenhushing may seem counterintuitive in an age when improving ESG practices is in vogue, but there are many reasons behind this trend.
As reported by The Washington Post, greenhushing on Wall Street comes alongside “widespread conservative backlash to ESG goals and policies”. In fact, Republican state treasurers and attorney generals across several states have blacklisted banks that factor ESG concerns into investment decisions. Some companies fear the public backlash or negative investor sentiment that they could be victim to if their ESG goals are considered to be misaligned with the public, political, and economic climate.
Greenwashing vs Greenhushing: Are Cases Reducing?
Companies who are afraid of this scrutiny may well be keeping their ESG practices under wraps, rather than exaggerating efforts. This ‘hush hush’ behaviour could lead to the illusion that greenwashing cases are reducing — when, in actuality, this isn’t the case.
A recent report by RepRisk noted a 12% reduction year-on-year in global greenwashing cases during the year ending June 2024. This marks the first decrease in six years, and was largely influenced by heightened regulatory pressures — particularly in regions like the EU.
However, despite this, the report also highlighted a rise in high-risk greenwashing incidents. Cases where deception was more severe and intentional rose by over 30%. The report judged the severity based on the consequences of the incident, the impact, and the degree of it being intentional. This essentially means that even though fewer companies are engaging in greenwashing, the ones that are are doing so in higher-risk ways.
This greenwashing trend ties in with the previously mentioned reclassification shifts within the SFDR framework. Some funds have dropped back from Article 9 to Article 8, in keeping with increased scrutiny from the public eye. This may be in part fuelled by stricter reporting requirements for higher classifications, as well as an increase in regulatory focus on greenwashing claims.
Greenhushing Challenges For Asset Managers
This trend of greenhushing poses a very unique challenge for asset managers, who rely on ESG transparency to assess and report on fund performance and ensure all funds align with investor sustainability objectives. Companies that are greenhushing obscure the key information required by investors, which could have devastating effects on risk management and ESG practices.
Asset managers handling funds on behalf of investors could be cautious about how ESG objectives are framed — especially when handling responsible investment funds, such as pensions.
For both asset owners and asset managers, tighter regulations and restrictions underscore the importance of complete asset oversight. Asset managers in particular require accurate and reliable data and reports in order to navigate through the changes in classifications and ESG claims.
This is where GaiaLens comes in. Managers can take a deeper look into a company’s ESG claims, to cross-check and validate data. The greenwashing analytics solution provides this deeper insight through the AI chatbot, minimising any risks of investing in greenwashed assets.
Reports are updated daily, providing asset managers with a library of thousands of global company reports, automatically highlighting any instances of ESG claims that may not be fully transparent or compliant.
Limit Greenwashing Risks With GaiaLens
Both greenhushing and greenwashing represent two sides of the same coin — each presents unique challenges for asset managers, and both require a comprehensive, data-driven approach in order to remain compliant.
GaiaLens provides asset managers with access to an independent greenwashing evaluation solution, which provides full information about a company’s ESG standing. Our AI-driven solution not only identifies red flags, but allows managers to make informed, sustainable decisions.
Get in touch with our team to find out more about how GaiaLens can assist your ESG reporting. Or, get started with our free trial, and see how our software can work for you.
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