That’s the golden question many investors have for the thousands of companies claiming to be sustainable in one way or another. In the United Kingdom, investors and the public may soon be a bit more certain of companies’ green credentials thanks to new laws coming into effect in May.

Britain’s financial regulator, the Financial Conduct Authority, will require firms’ public communications to be clear, fair and not misleading. Regulators around the world are trying to tackle the problem of greenwashing with new rules and enforcement mechanisms. In January, the European Parliament approved a new directive that bans greenwashing and misleading advertising.  

As greenwashers are expected to face increasing and more frequent fines in certain jurisdictions, a plastic-prevention start-up called CleanHub recently ranked the largest greenwashing fines given out to date. Rolling into first place was Volkswagen, with US$34.69 billion in penalties issued over a number of years in different countries for using software in its cars that reported emissions as lower than they were.  

The top three are rounded out by Toyota, which paid US$180 million in fines in 2021 for failing to report defects in its cars’ tailpipe emissions to the Environmental Protection Agency, and DWS, a Deutsche Bank-controlled investment firm, which forked out US$25 million last year in a settlement after U.S. regulators alleged that the investment firm had misstated its environmental, social and governance (ESG) investing.  

“Given how substantial these fines are, it’s clear that regulators are trying to send a message to companies,” CleanHub’s vice-president of marketing, Nikki Stones, said in a statement. “The days of quiet punishments are over when it comes to greenwashing – brands that intentionally mislead consumers over green initiatives will be severely penalised moving forward.”

That being said, after the top two the fines drop off significantly, revealing that historically, companies have not been held to account for making misleading green claims. Many business leaders claim they don’t understand how to make their companies more sustainable, let alone how to communicate how green their companies are. Last year, 72% of business executives surveyed by the Harris Poll, an American market research firm, agreed that “while everyone says they want to advance sustainability efforts, no one knows how to actually do it.” And worse, 59% of American executives surveyed “admitted to overstating – or inaccurately representing – their own sustainability activities.” 

But all of this could soon change as regulators slowly start to impose more greenwashing rules. In Canada, the federal government is making amendments to the Competition Act, which currently bars misleading advertising, to ban greenwashing specifically, although some environmental groups say the changes don’t go far enough. The Competition Bureau is currently investigating RBC and the Canadian Gas Association over greenwashing allegations. In 2022, Keurig Canada paid $3 million in fines to the bureau to settle concerns over the company’s misleading claims about the recyclability of its coffee pods.  

In the United States last year, the Securities and Exchange Commission adopted a rule that requires registered funds with names that suggest they’re focused on ESG to align at least 80% of their assets in sustainable investments.  

Could we be seeing the beginning of the end of the age of the greenwasher? Stones thinks so.  

“We expect to see more greenwashing fines in the coming years,” she said. “To swerve these penalties, companies need to make sure all of their environmental claims and initiatives are transparent, truthful and are backed up with evidence.” 

Here are the top 10 greenwashing fines from CleanHub:

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Volkswagen is Germany’s largest automaker and runs neck-and-neck with Toyota to be the world’s largest automobile company. In addition to its lower priced VW models, the company also owns brands like Audi, Bugatti, and Porsche. (Yes, this article is a great excuse to spend time ogling the new electric Porsche Taycan.)

The company took a major hit when it was caught cheating by the U.S. Environmental Protection Agency. The scandal cost VW €26 billion, and there may be more penalties to come. Volkswagen is still under investigation by the U.S. Securities and Exchange Commission, and former CEO  Martin Winterkorn was charged with fraud in Germany. Investors should be cautious—more bad news is almost surely on the way.

It’s understandable that Volkswagen wants to turn the page on this story, and it seems like its strategy is to leap frog over internal combustion engines by investing €30 billion over the next four years to launch fifty different electric cars. As CEO Dr. Herbert Diess said in the company’s 2018 sustainability report, “On the road to emission-free mobility, we are putting all our weight behind the electric car.”

VW is betting that the future of mobility is electric, and hoping that people will forget about their dirty diesel history. We got a taste of the new branding with this week’s unveiling of an updated logo and the new ID.3 electric model. I’m not a car expert, but it looks pretty good in this early review. European deliveries will start in the middle of next year in with a base model priced at under €30,000. By comparison, the Tesla 3 starts at €57,000.

If you put the scandal aside, Volkswagen’s underlying financial situation looks fairly good. They’ve had growth in the top line (revenues) and the bottom line (profit) each year since 2015. The stock hasn’t been doing well, so investors looking to bet on electric vehicles might do better to invest in Volkswagen rather than pricey Tesla stock. But some people just won’t forgive Volkswagen for its past sins, so let’s take a look at Toyota, Volkswagen’s main rival.

Toyota launched the first Prius hybrid in 1997, and it has dominated the market for hybrid cars ever since. But it’s no surprise that you’ve never heard of a fully electric Toyota because it doesn’t exist. Toyota has made a strategic decision to sell hybrid vehicles for now and to develop zero emission hydrogen fuel cell vehicles in the future.

My concern with hydrogen fuel cells is that they require the construction of a whole new distribution network. Gas stations need to be replaced by hydrogen stations, whereas electric vehicles can be plugged in to the existing grid. This makes perfect sense for centralized vehicles, like buses and forklifts, but it’s hard to imagine that it’ll become mass market anytime soon. Really, it comes down to how rapidly consumers start adopting fully electric vehicles. Toyota will be behind the curve if we see exponential growth, but would likely win the long game if the internal combustion engine ends up experiencing a long, slow death or hydrogen fuel cells emerge as the most popular zero emission option.

While Toyota was a pioneer of hybrid electrics, and Volkswagen is betting big on the future of all-electric, both companies are trying to make sure a switch away from internal combustion vehicles doesn’t happen too quickly. They’d like to squeeze out as much profit as possible from the billions they have poured into their internal combustion production lines before they become obsolete.

According to InfluenceMap, a U.K.-based non-profit that maps the extent to which corporations influence climate policy, Toyota is the bigger obstacle to progressive policies. The company scored a D–, which is at the bottom end of the range of major automakers. InfluenceMap cited Toyota’s apparent support of the U.S. Administration roll back of fuel efficiency and greenhouse gas standards, its opposition to phasing out conventional vehicles in India and the U.K., and its lack of support for zero-emission vehicle mandates in China and the EU.

Volkswagen is not much better. The company scored a D+, which is the top end of the range of automakers. According to InfluenceMap, the company didn’t appear ready to support more ambitious CO2 targets in Europe despite a 2017 leaked internal document suggesting that it was. Conversely, in 2018, Diess strongly criticized EU proposals to tighten vehicle CO2 targets for 2030, arguing that they would negatively impact the sector’s international competitiveness. In 2018, Diess also warned against an ambitious transition towards electric vehicles in the transport sector and opposed bans on specific vehicle types, namely diesel.

Toyota’s financial statements are, understandably, in a better place than Volkswagen’s right now. Investors have seen more growth and less volatility with no major scandals beyond the odd product recall. With a higher clean revenue score, Toyota wins the Sustainable Stock Showdown for now, but Volkswagen is picking up speed in the race to all-electric vehicles. I’ll be keeping a close watch on these companies. If the market shifts quickly towards electric vehicles, Toyota could start eating Volkswagen’s zero-emissions dust.

Beta is a measure of a stock’s volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. Lower beta means less risk.

Have a company in your portfolio that you want to replace with a more sustainable option? Write us an email or send us a tweet.

Tim Nash blogs as The Sustainable Economist and is the founder of Good Investing.

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The German carmaker’s profits and share price have languished, and the sales numbers have been overshadowed by one of the most damaging scandals in corporate history: accusations that it installed illegal software in its diesel models to circumvent tightening emission rules. VW, whose brands also include Audi and Porsche, has paid billions of dollars in fines and compensation.

That’s not all. This past April, the European Commission accused the company of colluding from 2006 to 2014 with Germany’s two other big carmakers, Daimler and BMW, to restrict the development of clean emissions technology in Europe. Each faces fines of up to 10% of its annual worldwide sales.

To VW’s credit, however, it is now trying to turn over a new leaf. Instead of growth at all costs, a policy often blamed for encouraging “diesel-gate,” a new chief executive, Herbert Diess, is putting the emphasis on improved financial performance.

And a centrepiece of that shift is a focus on green technology.

VW’s “electric offensive,” unveiled on March 12, is the most ambitious commitment of any carmaker to electric vehicles. It aims to launch almost 70 new electric models over the next decade, up from the 50 previously on the drawing board.

The company has pledged to spend €30 billion on the electrification drive by 2023, including a possible investment in battery cell plants in Europe and 400 fast-charging stations along European roads. It expects to deliver 22 million electric vehicles by 2028, almost 50% more than its previous target.

A new subsidiary known as Elli – short for electric life – will sell wall boxes, powered by renewable electricity, for recharging electric car batteries at home. It plans to install 3,500 charging points at employee car parks attached to VW plants.

If all goes to plan, electric vehicles will make up more than 40% of VW’s fleet by 2030. It aims to achieve carbon neutrality in all its operations by 2050. “The targets of the Paris agreement (on climate change) are our yardstick,” Diess says.

The transformation will not be easy for a company of VW’s size. In particular, it could unleash a battle royal with German trade unions, which backed the growth-first strategy as a way of ensuring job security for workers. Even so, Diess promised as he outlined the new plan that “the supertanker is picking up speed.”

Brazilian investigators have yet to nail down what caused a mining-waste dam to burst on January 25 near the town of Brumadinho in the southeastern state of Minas Gerais. The resulting avalanche of toxic mud killed about 300 people as it raced towards the town, burying a cafeteria, an inn and other buildings.

What is certain, however, is that the disaster has sullied the reputation of Vale, the global mining giant which owns the iron ore mine outside Brumadinho that feeds the dam. Among its many other interests, Vale is a prominent player in Canada’s mining industry through its 2006 purchase of Inco, at the time the western world’s biggest nickel producer.

Vale now faces a torrent of criticism, starting with the question of whether it learned anything at all from the 2015 collapse of a similar mine dam in Brazil, jointly owned with BHP. That tragedy cost 19 lives.

Along with other investigations, the mines and energy ministry has launched a probe under Brazil’s anti-corruption law into allegations that Vale colluded with auditors to misrepresent the safety of the Brumadinho dam.

Much of the concern stems from the fact that dams like the one outside Brumadinho are among the simplest and cheapest ways to dispose of toxic mine waste. Known as upstream tailings dams, they start as raised embankments made of compacted earth to contain the muddy waste pumped out of a nearby mine. As the bottom layer of mud dries, the dam is raised and enlarged by building more embankments upstream of the original one.

One risk is that the mud foundation becomes unstable as waterlogged soil starts to flow like a liquid, a process known as liquefaction. Experts are confident that liquefaction played a role in the Brumadinho dam’s collapse; they are less sure what caused it.

Pending the outcome of the investigations, the Brazilian authorities have imposed tight restrictions on upstream mine-waste dams, including requiring improved monitoring devices and detailed emergency plans.

The accident has taken a toll on Vale. Chief executive Fabio Schvartsman and three other senior managers stepped down in early March after prosecutors recommended they be “temporarily” relieved of their duties.

Vale shares lost almost a quarter of their value in the days after the accident and, as of mid-April, had yet to recover all their losses.

The company has denied any interference in the oversight of its mine dams, and Schvartsman has insisted that his handling of the accident was “absolutely appropriate.” Still, he acknowledged that his presence had become an “inconvenience” for the company.

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