For all the talk about greenwashing in private markets, there is no clear picture of what greenwashing looks like in action.

Regulators in Europe and North America are forming policies to clamp down on phoney sustainability claims, but private investors themselves are still struggling to precisely define what actually constitutes greenwashing.

To help bring clarity to the term, we asked four industry experts for tell-tale signs for how investors can catch a greenwasher:

  1. Moral acrobatics
    Managers that greenwash their sustainability practices will often try to balance competing interests across multiple strategies, according to Bobby Turner, principal and chief executive of Turner Impact Capital. Founded in 2014, the firm focuses its investments exclusively on sectors where it can help make a social impact including the healthcare, housing and education sectors. “You can’t use one fund to invest in businesses as a force for good while your other funds do not. They tend to cancel each other out,” Turner said. “Many of these firms have almost a cirque du soleil-like moral flexibility. Impact investing is not an asset class. It’s an investment strategy, a philosophy, a risk filter that you have to superimpose across all your investments.”
  2. Missing or fuzzy details
    If a GP is greenwashing, what the firm isn’t saying may be more important than what it’s willing to disclose, explained Steven Ward, a London-based partner in the law firm Squire Patton Boggs who leads the investment funds team in Europe. Investors should drill into the details of their manager’s reporting for specifics. “Managers that are actively engaged with their ESG strategy tend to be very forceful and developed with their disclosures,” he said. “Managers that are just claiming to invest an ESG fund, the details tend to be quite thin… ask for examples of investments the firm has made that were done right. It’s not good enough for a manager to simply speak about their intentions.”
  3. Hedging language
    One tell-tale sign of greenwashing or that a manager is non-committal about its ability to deliver on ESG, according to Amy Lynch, founder of the regulation advisory firm FrontLine Compliance, is the use of what Lynch described as “hedging language”. The use of phrases like “we have intended” or “our goal was” could be a GP attempting to hedge on what they plan to deliver for investors on sustainability. “It’s one thing to have a goal, it’s another thing to actually meet that goal,” Lynch said. “It has to be put into context.”
  4. Big jumps in data
    Another red flag investors should beware is “information that doesn’t align” with previous reporting, Lynch said. “If you’re looking at a five-year timeframe, the data needs to be consistent,” she explained. “What is a reasonable change? If someone says they reduced their carbon emissions by 50 percent in a one-year period, is that believable? How did they do it? How did it happen? That’s a huge change.”

With these four anti-greenwashing suggestions in mind, there’s two tempering pieces of advice Vikram Gandhi, founder of Asha Impact and a senior advisor to CPPIB, had to offer investors.

First, while he described greenwashing as a “disingenuous” approach to good investing, Gandhi added, “let not perfect be the enemy of good”.

“In the big scheme of things, if 80-90 percent of assets in a portfolio are not being greenwashed and 10 percent are, and people start focusing on the 10 percent, that could be a bad thing as well,” he said.

His second piece of advice is one that investors are all too familiar hearing. “If you really care that your capital is going to do the right things, then do a little more due diligence on it.”