FCA Tightens Green Investment Rules to Thwart Greenwashing

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by KnowESG
KnowESG_FCA Tightens Green Investment Rules to Thwart Greenwashing
Image courtesy of https://carbonbetter.com/

The Financial Conduct Authority (FCA) is giving a helping hand to businesses in the finance industry.

They have created guidelines to explain a new rule coming into effect on May 31st. This rule aims to protect consumers by making sure descriptions of sustainable products and services are accurate.

There is a big demand for sustainable finance! A survey showed 81% of adults want their investments to benefit the environment or society, alongside making money. This new rule helps businesses meet that demand and gives consumers the confidence to invest in sustainable options.

The FCA is also considering including portfolio managers in the rules for labelling and explaining sustainable investments. Portfolio managers handle groups of investments for consumers, either as pre-made products or personalised services.

These proposed labels and requirements (called Sustainability Disclosure Requirements or SDR) are similar to what asset managers started using in November 2023.

Here's what they involve:

  • Clear labels to show consumers where their money goes

  • Rules on how products can be described. This means a product can only be called "sustainable" if it can truly be proven to benefit the environment or society.

Sacha Sadan, Director of Environmental, Social and Governance, FCA, said:

"Confirming the new anti-greenwashing guidance and our proposals to extend the Sustainability Disclosure Requirements and investment labels regime are important milestones that maintain the UK’s place at the forefront of sustainable investment. Our good and poor practice anti-greenwashing examples will help firms market their products in the right way. We continue to work closely with the ASA and CMA to address greenwashing.

"Consumers care about investing in products that have a positive impact on the planet and people. That’s why we want to boost the integrity of the market and ensure people can make informed decisions with their money."

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Source: FCA

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