In a bid to clamp down on greenwashing, the Financial Conduct Authority (FCA) is proposing a package of new measures.
Amongst the measures proposed by the FCA are an investment in product sustainability labels and restrictions on how terms like “ESG”, “green” or “sustainable” can be used.
The measures are among several potential new rules which the FCA says will protect consumers and improve trust in sustainable investment products. The work forms part of the commitment made in the FCA’s ESG (Environmental, social, and governance) Strategy and Business Plan to build trust and integrity in ESG-labelled instruments, products and the supporting ecosystem.
The FCA says there has been growth in the number of investment products marketed as “green” or making wider sustainability claims. The financial regulatory body continues that exaggerated, misleading or unsubstantiated claims about ESG credentials damage confidence in these products.
It wants to ensure that consumers and firms can trust that products have the sustainability characteristics they claim to have, the FCA says.
Greenwashing misleads consumers and erodes trust in all ESG products.
The FCA is proposing to introduce: Sustainable investment product labels that it says will give consumers the confidence to choose the right products for them.
Restrictions on how certain sustainability-related terms can be used in product names and marketing for products which don’t qualify for the sustainable investment labels.
Consumer-facing disclosures which it says will help consumers understand the key sustainability-related features of an investment product – this includes disclosing investments that a consumer may not expect to be held in the product.
More detailed disclosures which it says should be suitable for institutional investors or retail investors that want to know more.
Requirements for distributors of products, such as investment platforms, which the FCA says is to ensure that the labels and consumer-facing disclosures are accessible and clear to consumers.
Our proposed rules will help consumers and firms build trust in this sector.
The FCA says it is also stepping up its supervisory engagement on sustainable finance and enhancing its enforcement strategy. This includes checking how firms have responded to the expectations set out in the Dear Chair letter issued to authorised fund managers in July 2021.
The FCA’s Director of Environment Social and Governance, Sacha Sadan, said: “Greenwashing misleads consumers and erodes trust in all ESG products. Consumers must be confident when products claim to be sustainable than they actually are. Our proposed rules will help consumers and firms build trust in this sector.
“This supports investment in solutions to some of the world’s biggest ESG challenges. This places the UK at the forefront of sustainable investment internationally. We are raising the bar by setting robust regulatory standards to protect consumers in line with our wider FCA strategy.”