New FCA rules set to tackle greenwashing

In a bid to stamp out greenwashing, the Financial Conduct Authority (FCA) is proposing a package of new measures. Included in its new consultation on Sustainability Disclosure Requirements (SDR), are three categories of fund labels to be used for sustainable investment products:

Sustainable focus will be used for products investing in assets that are environmentally or socially sustainability. The Sustainable improvers label is for products investing in assets to improve the environmental or social sustainability over time, and sustainable impact for products investing in solutions to environmental or social problems to achieve positive, measurable real-world impact. 

False credentials creating a trust deficit

Amongst the measures proposed by the FCA are restrictions on how terms like “ESG”, “green” or “sustainable” can be used in product names and marketing for products which don’t qualify for the sustainable investment labels. 

“There are growing concerns that firms may be making exaggerated, misleading or unsubstantiated sustainability-related claims about their products; claims that don’t stand up to closer scrutiny (so-called ‘greenwashing’),” the FCA said.

Firms will have until 30 June 2024 to update their product material and make initial disclosure requirements.

Protecting consumers

Consumer-facing disclosures, to help consumers understand the key sustainability-related features of an investment product, are also proposed, as well as more detailed disclosures for professional investors.

Sacha Sadan, the FCA’s director of environment social and governance, said: “Greenwashing misleads consumers and erodes trust in all ESG products. Consumers must be confident when products claim to be sustainable that 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.”

Becky O’Connor, head of pensions and savings at Interactive Investor and author of The ESG Investing Handbook, said “The FCA’s measures should go a long way to restoring faith and eliminating exaggerated and downright misleading marketing of financial products. Moves towards official definitions and labels are a welcome development.”

The consultation is open until January 25, 2023 and the regulator said it intends to publish final rules by the end of the first half of 2023.

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