Perhaps like me, you are a pension saver who has some discretion as to how your pension scheme invests your contributions. As a person who is concerned about climate change, you ask for your contributions to be invested in the “greenest” funds available. In the European Union, that means a fund classified under Article 9 of the Sustainable Finance Disclosure Regulation (SFDR), the so-called "dark green" funds whose names often promise climate action, Paris alignment or a clean energy transition.

What you probably would not expect is that your monthly pension contributions are now being invested in a portfolio that is substantially more carbon-intensive than conventional investment funds with no sustainability objectives whatsoever. Yet that is precisely what my ISRF-funded project, Dirty Green Money, discovered. Even by the most cautious measure, looking only at the direct emissions from companies’ operations and electricity consumption, my findings indicate that the EU's "greenest" funds are on average 77% more carbon intensive than conventional funds. Factor in the emissions from their supply chains and the use of their products, and these "green" funds are nearly five times more carbon-intensive than their conventional counterparts.

More unsettling still is that none of this depends on anyone lying. The companies in these portfolios openly and accurately disclose their emissions and the funds comply with every rule. The problem is not that the regulations are being broken. Nor is it a problem of weak enforcement. It is that the regulations themselves are doing the greenwashing, quietly turning carbon-intensive investments into sustainable ones. Put simply, the greener the label, the dirtier the portfolio.

Finance as Climate Saviour

Why does this matter? Because private finance has been placed at the centre of global climate strategy. Since the World Bank and IMF launched their "Billions to Trillions" agenda in 2015, policymakers have insisted that public money alone cannot fund the energy transition. The task is instead to redirect the vast pools of private capital managed by asset managers towards low-carbon activity.

The EU has gone furthest in building the regulatory architecture to make this happen. Three regulations work together. The Corporate Sustainability Reporting Directive (CSRD) requires companies to disclose standardised sustainability data. The EU Taxonomy defines which economic activities count as environmentally sustainable and the Sustainable Finance Disclosure Regulation (SFDR) classifies investment funds. Article 6 funds have no sustainability objectives. Article 9 funds, by contrast, must have sustainable investment as their core objective, while doing "no significant harm" to other environmental goals.

Together, these regulations were triumphantly hailed as the end of the greenwashing "Wild West". The Taxonomy Regulation names greenwashing in its preamble as precisely the problem it exists to solve. The President of the EU Commission, Ursula von der Leyen, was even more emphatic declaring that with the EU’s new regulatory architecture, "Investors will know exactly whether an investment is truly green" and that they will not "be fooled by greenwashing".

In practice, the SFDR classifications have become a hierarchy of marketing labels for asset managers, something conceded by recent proposed revisions to SFDR, with Article 9 financial products representing the zenith of sustainable investing globally. If the system works as intended, Article 9 funds should be measurably less carbon-intensive and more sustainable than Article 6 funds. But are they? Do these regulations genuinely help to produce sustainable investment? Or do they simply allow the existing carbon economy to be repackaged as a portfolio of sustainable assets? That is what my project set out to test.

Opening the Black Box

Most criticism of greenwashing has focused on marketing. Misleading adverts, vague claims, glossy sustainability reports. Meanwhile, the sustainable finance industry relies on proprietary environmental, social and governance (ESG) ratings whose methodologies are notoriously opaque, and which frequently disagree with one another about the same company.

So rather than trust the labels, I looked at what the funds actually own. Using the Bloomberg financial database, I collected holdings-level data on the 33 largest Article 9 equity funds, representing over $96 billion in assets and nearly 40% of the entire Article 9 equity market. That meant analysing 4,661 individual holdings: what each company emits, how much revenue it generates, and how much of each fund's capital it receives.

For comparison, I collected the same data for conventional Article 6 index-tracking funds which together capture around 85% of global equity market capitalisation. They provided a baseline of what the market looks like with no sustainability screening at all. I then calculated the two standard metrics the industry itself uses to measure carbon exposure: financed emissions and weighted average carbon intensity (WACI).

The Inversion of Green Finance

The results totally invert the expected hierarchy. Because conventional funds are vastly larger, comparing their absolute emissions with those of Article 9 funds tells us very little—a thousand carrots contain more calories than a single bite of a cheeseburger, but that doesn't make the cheeseburger the healthier option. Compare like with like, though, and the picture is stark. Every one billion USD invested in a dark green fund financed 77% more emissions than the same one billion USD in a conventional fund. Factor in supply-chain emissions, and dark green portfolios were nearly five times as carbon-intensive.

The EU even has its own climate benchmark, derived from the UN’s 2015 Paris Agreement. A "Paris-aligned" portfolio should be half as carbon-intensive as the market as a whole. The average Article 9 fund was not half as carbon-intensive as the market. It was almost twice as carbon-intensive.

If we follow the money, the reason for this inversion becomes clear. Industrials and Materials, the two most carbon-intensive sectors in the dataset, received almost 40% of all Article 9 capital. Renewable energy received just 2.68%. For every dollar these "dark green" funds directed to renewables, more than ten dollars went to Industrials and Materials. Giants like Siemens, Linde and Air Liquide – all enormously carbon-intensive multinationals – each appear in more than a hundred Article 9 funds and are regularly among their largest holdings.

^{Graphic provided by author}

Overall, it amounts to an almost Orwellian inversion of sustainability labels and reality. And if policymakers succeed in nudging even more capital into these funds as they are currently constructed, the result would be a significant increase in financed emissions, not a reduction.

How Regulation Does the Greenwashing

How is this possible? The obvious explanation would be deception. Firms understating their emissions, or fund managers mislabelling their products. But that is not what I found. The companies dominating Article 9 portfolios openly report high emissions and a structural dependence on fossil fuels. The harm is fully disclosed. Rather, it is the EU’s regulatory architecture that reclassifies these corporations as sustainable. I call this systemic greenwashing.

Part of the answer lies in the gap between the regulations. SFDR's definition of a "sustainable investment" sets no emissions thresholds and leaves "significant contribution" and "significant harm" undefined. The more rigorous EU Taxonomy is legally separate, and Article 9 funds are not required to align with it. In 2024, the European Supervisory Authorities confirmed that a fund could report 0% Taxonomy alignment while still claiming 100% of its portfolio as sustainable investment. In my sample, 97% of Article 9 investments were classified as sustainable under SFDR. Among the funds that reported Taxonomy alignment at all, the average was just 11.4%.

It helps to think of this architecture less as a system for evaluating sustainability than as a factory for producing it. Corporate disclosures are the raw materials. They are fed through successive layers of classification, and out the other end comes sustainability as an investable attribute, ready to be placed on the market. Rather than excluding carbon-intensive incumbents from "green" portfolios, the regulations perform the classificatory alchemy that enables their inclusion.

Even the Taxonomy, supposedly the scientific backbone of the system, confers sustainability through a series of classificatory sleights of hand. Siemens, whose carbon intensity sits 50% above the average for its sector, reports a quarter of its activity as Taxonomy-aligned, because electrification and efficiency are treated as proxies for decarbonisation – regardless of what generates the electricity, or the steel and cement embedded in the equipment. Trane Technologies, among the most carbon-intensive firms in the dataset, is positioned as a transition leader by comparing its products against hypothetical dirtier alternatives its customers may never have bought. Under this scenario, Trane’s real-world emissions are offset by imaginary ones that may never have occurred. Hydrogen producers Linde and Air Liquide are included on the promise of a low-carbon future, even though less than 1% of global hydrogen production is currently low-emission, and Linde's work includes a 20-year contract for gasifying petroleum coke at the world's largest oil refinery. Hardly the work of a pioneer in decarbonisation.

The emissions sit in plain sight, disclosed exactly as the rules require. But within the regulatory architecture, they cannot mean anything. The regulations speak the language of harm fluently – “significant harm” “adverse impacts” and so on – but only in a narrow technical sense where harm means failing to meet a technical criterion which often has nothing to do with carbon emissions, deforestation, or biodiversity loss. What most people would recognise as harm – millions of tonnes of CO2 entering the atmosphere – is excluded from that language by design. It cannot be registered, because the regulatory regime has no category in which to register it. But when presented to the public, the ordinary meaning of harm is quietly reattached. A fund that does “no significant harm” in the regulation’s narrow technical sense reaches investors and pension savers under names like “Climate Action” or “Paris-Aligned”, where it is read as a promise that the harm is not there at all, and that their money is actively contributing to global decarbonisation.

Why it Happens: Protecting Assets, Not the Planet

It would be easy to treat all this as poor regulatory design, fixable with tighter definitions and better data. To my mind, that fundamentally misreads the problem. The structure of these regulations reflects the political economy of what the likes of Benjamin Braun and Brett Christophers have called asset manager capitalism.

Firms like BlackRock and Vanguard hold stakes in almost every major corporation. Their business depends on preserving and growing the value of the assets they already own, often through passive funds that track the market. Rapid decarbonisation threatens exactly those values. Divesting from carbon-intensive incumbents would depress share prices across their portfolios. Renewable energy firms, meanwhile, often offer the kind of uncertain, long-horizon returns asset managers avoid. Why, then, would they welcome regulation capable of genuinely disrupting the very portfolios they are paid to protect?

Drawing on Daniela Gabor's account of the "de-risking state", I argue that sustainable finance regulation does not reorient capital towards decarbonisation so much as protect existing capital from the risks of the climate crisis. By certifying carbon-intensive incumbents as sustainable, the regulations reduce the reputational and regulatory risks of continuing to hold them. Regulation becomes a means of making the existing carbon economy investable under conditions of ecological emergency.

Beyond Greenwashing: The Production of Harmlessness

For my home discipline of criminology, "greenwashing" is a profoundly inadequate word for this phenomenon. Greenwashing implies the marketing embellishment of individual firms. What I found is deception that is structural rather than communicative. Misleading sustainability claims produced and sanctioned by the very regulations designed to prevent them.

Consider one fund in the sample, Legal & General's Hydrogen Economy ETF. It financed more than ten times the emissions of the average Article 9 fund per billion dollars invested. Its mandatory disclosures nonetheless state that it does no significant harm. How? The fund relies on an index; the index relies on estimated data from third-party providers; and both L&G and the index provider disclaim responsibility for the accuracy of that data. This is the regulatory onion of ESG investing: a series of layers with no core, each pointing to another as its guarantee, until no one is responsible for the real-world emissions at all—as if they were caused by alchemy or magic. And no one can be said to have lied.

In any other context, soliciting investment on claims that do not match a product's characteristics would look like misselling, or even fraud. Here, because the deception is produced by compliance itself, it falls into a juridical vacuum beyond the reach of criminal law. That matters all the more because the ultimate investors are often ordinary workers, whose pension savings or monthly insurance payments are channelled into these funds with little say over where their money goes. What legal recourse is available to ordinary people to object to such investments when they are made in perfect compliance with EU regulations?

In my earlier work on social harm, I described the "assumption of harmlessness", the ideological tendency in liberal capitalist societies to presume that normalised economic activity is benign. What sustainable finance reveals is something more active. Harmlessness is no longer merely assumed but is actively produced through institutional procedures that take accurate data about harmful activity and transform it into formal evidence of virtue. What might be described as the production of harmlessness.

What Comes Next

The usual response to findings like these is a call for more. More disclosure, more standardised data, tighter audit. But what if the problem was never a shortage of information? Every tonne of carbon in this study was disclosed. It was all there in the annual reports and databases, available to anyone who cared to look. The problem is not a failure of the regulatory architecture to see, but what it does with what it sees.

This raises questions well beyond sustainable finance. Compliance, audit and disclosure have become the dominant means of governing the harms of global corporate capitalism, from climate change to labour exploitation in supply chains. Nearly thirty years ago, Michael Power described audit as a “ritual of verification” that provided organisational reassurance and comfort. Today, these tools are being asked to accomplish something far more ambitious. Namely, to steer the world’s capital away from ecological destruction and rid global supply chains of exploitation and abuse. What my research suggests is that such compliance regimes are designed to systematically certify their absence, irrespective of the truth.

Which brings me back to you, the ordinary pension saver concerned with climate change. You chose the greenest option available, the one the EU promised did no significant harm. And yet your money flowed quietly and perfectly legally to the very activities you wanted to prevent. Nobody lied. No rules were broken. We have long focused on how corporations and financiers lie and deceive to conceal their wrongdoing. But in a world in which compliance has been elevated to a technology of global harm governance, perhaps we now need to focus on something stranger. Namely that harms no longer need to be hidden, because our harm governance regimes simply reclassify them as virtue.