UK financial authorities to tackle greenwashing

LONDON – The UK’s Financial Conduct Authority (FCA) is proposing a package of new measures to regulate how investment managers are able to promote their funds as ‘sustainable’. The aim is to clamp down on greenwashing, and the new proposals would require funds to disclose how their investments meet the criteria of being environmentally friendly.

The new measures include using a set of three fund labels to distinguish types of “green” investing and imposing a higher burden on firms to back up marketing with evidence.

The FCA joins other financial regulators round the world in cracking down on greenwashing, including the Securities Exchange Commission in the USA as well as regulators in Germany.

There has been growth in the number of investment products marketed as ‘green’ or making wider sustainability claims in recent years. However, there are now accusations of exaggerated, misleading or unsubstantiated claims about ESG credentials of some funds. The FCA said it wants to ensure consumers and firms can trust that products have the sustainability characteristics they claim to have. 

The FCA is proposing to introduce:

• – Sustainable investment product labels that will “give consumers the confidence to choose the right products for them. There will be three categories – including one for products improving their sustainability over time – underpinned by “objective criteria”
• – Restrictions on how certain sustainability-related terms – such as ‘ESG’, ‘green’ or ‘sustainable’ – can be used in product names and marketing for products which don’t qualify for the sustainable investment labels
• – More general anti-greenwashing rules covering all regulated firms to help avoid misleading marketing of products
• – Consumer-facing disclosures to 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, suitable for institutional investors or retail investors that want to know more
• – Requirements for distributors of products, such as investment platforms, to ensure the labels and consumer-facing disclosures are accessible and clear to consumers.

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.”