FCA Proposes New Rules to Tackle Greenwashing
In a bid to clamp down on greenwashing, the Financial Conduct Authority (FCA) is proposing a package of new measures, including investment product sustainability labels and restrictions on how terms like ‘ESG’, ‘green’ or ‘sustainable’ can be used.
The steps are some of the possible new rules that will protect consumers and make it easier for them to trust products that are good for the environment. The work forms part of the commitment made in the FCA's ESG Strategy and Business Plan to build trust and integrity in ESG-labelled instruments, products, and the supporting ecosystem.
There has been growth in the number of investment products marketed as ‘green’ or making wider sustainability claims. Exaggerated, misleading, or unsubstantiated claims about ESG credentials damage consumer confidence in these products. The FCA wants to ensure that consumers and firms can trust that products have the sustainability characteristics they claim to have.
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 more sustainable than they 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."
The FCA is proposing to introduce:
Sustainable investment product labels 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. It is also proposing a more general anti-greenwashing rule covering all regulated firms. This will help avoid misleading marketing of products.
Consumer-facing disclosures 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 that the labels and consumer-facing disclosures are accessible and clear to consumers.
The FCA is also doing more to keep an eye on sustainable finance and improving how it enforces laws. This includes checking how firms have met the expectations set out in the Dear Chair letter sent to licenced fund managers in July 2021.