The world of sustainable investing has grown so rapidly that many savers now associate the ESG acronym with a kind of ethical seal of approval: if a product is “green”, the implicit assumption is that it must also be better. It is an understandable reflex, because the idea that one’s money can generate a positive impact holds an immediate appeal. But as so often happens, when something captures the broad public’s attention before understanding of it has matured, a short circuit occurs. And in the case of sustainable finance, that short circuit is called financial greenwashing.
The “financial” version of greenwashing is more subtle and, if anything, more insidious than what we see in consumer products. Here we are not talking about leaves on packaging or slogans seen on television, but about funds, ratings, indices and portfolios that nod towards sustainability without genuinely embodying it. The narrative, more often than not, runs ahead of the substance. And those who risk paying the price are precisely the savers who choose ESG financial instruments believing they are doing the right thing, yet without anyone having truly warned them about what is sustainable — and what merely appears to be.
The first truth worth establishing is straightforward: not everything bearing the ESG label is sustainable. And not because fund managers are necessarily acting in bad faith, but because that acronym encompasses very different approaches. Some exclude controversial sectors; some select the “best in class” even when the sector itself is far from virtuous; some measure real-world impact; some rely on external ESG ratings; some use proprietary models; some engage actively with companies and some do not. The result: two funds that both call themselves ESG can be the opposite of one another. And it is not unusual for a “green” index to include companies that, if presented to an uninformed investor, would hardly be associated with sustainability.
All of this stems from a fundamental misunderstanding: ESG is not a purity mark, but a method of analysis. It is a tool for evaluating long-term risks and opportunities, for assessing whether a company is prepared for the energy transition, climate regulation, data governance, respect for rights, and the quality of its governance structure. It does not measure whether a business is “good” in an ethical sense, but whether it is well managed and forward-looking. Confusing the two produces unrealistic expectations and, frequently, profound disappointment.
There is also another critical issue that many savers overlook: who decides what is sustainable? More often than not it is ESG rating agencies, which do not, however, apply uniform criteria. It can happen that a company receives a high score from one agency, a mediocre score from a second, and a low score from a third — not because anyone is mistaken, but because the methodology differs: some models reward transparency, others environmental performance, others risk management. This is why those who communicate well sometimes appear more sustainable than those who actually perform well. In the world of financial greenwashing, the word “disclosure” carries as much weight as the actual environmental footprint.
All of this makes it more difficult for investors to find their bearings. But it does not mean that ESG instruments are useless or illusory: on the contrary, when well constructed they represent an effective way of reducing long-term risks and investing in companies better prepared for the future. One simply needs to know how to read beyond the label — and one does not need to become an ESG analyst to do so.
The first rule is not to stop at the fund’s name. Products are called “Green”, “Climate” and “Sustainable” with remarkable generosity, but it is the prospectus — not the title — that truly reveals where investors’ money ends up. One must understand whether the strategy is based on exclusions, a “best in class” approach, or impact criteria. It is also necessary to find out which ratings are used, whether internal or external, and to verify their consistency. Finally, one straightforward but enormously powerful step: look at the ten largest portfolio holdings. Because a fund’s sustainability does not lie in its documentation, but in the securities it actually holds.
In the meantime, European legislators are also redefining the rules of the game. Directive (EU) 2024/825, which will come fully into force in September 2026, puts an end to generic environmental claims and imposes transparency, evidence and verifiability. In parallel, the more ambitious Green Claims Directive, which would have introduced prior verification of “green” claims, experienced a setback in 2025 — not in terms of abandoning the objective, but because extending its scope to micro-enterprises risked creating an unsustainable administrative burden. This is not a step backwards, but a process that requires a balance between investor protection and operational realism.
In Italy, the transposition of Directive 2024/825, initiated in November 2025, updates the Consumer Code in precisely the anticipated direction: defining what environmental claims are, introducing stricter controls, and making misleading communications subject to sanctions. An inevitable step in a country where “green” marketing in finance has grown at such a pace as to require new rules.
The message for savers, therefore, is not to distrust ESG instruments. That would be both unfair and short-sighted. The point is a different one: to dismantle the belief that a label is sufficient to define the quality or genuine sustainability of an investment. Real sustainability is complex; it requires metrics, data, verification and consistency. The kind that is merely narrated is simple, seductive and frequently misleading.
Today, more than ever, the difference between the two is material. Those who choose sustainable financial instruments should not ask themselves “is this fund ESG?”, but rather “in what way is it ESG, and on the basis of what evidence?” It is a small question, but it is the most powerful form of protection an investor can give themselves.
Because in finance, as in sustainability, what is genuine has nothing to fear from transparency. Those who engage in greenwashing most certainly do.