The Financial Conduct Authority (FCA) has published a package of measures which it believes will improve the transparency of sustainable investment products and tackle ‘greenwashing’.
‘Greenwashing’ is described a practice in which certain financial products are presented as being more environmentally-friendly than they actually are, in a bid to attract the interest of greater numbers of green-conscious customers.
The regulator said it wanted to protect investors, and help them make more informed decisions when putting their money into the sustainable investment market. Its previous research had highlighted a lack of confidence among investors in the sustainability claims of investment firms about specific investments, while there was a lack of consistency in how firms use certain terms, such as ‘green’, ‘ESG’ and ‘sustainable’.
The FCA said that with around $18.4 trillion of ESG-orientated assets now being managed across the world, it was time to put in place new requirements around disclosure as well as a labels regime to make these terms more understandable.
The new measures
In order to improve understanding around green investments, the regulator said it would be introducing the following measures.
First, there will be an ‘anti-greenwashing rule’ for all authorised firms. This will force them to ensure that any sustainability-related claims are fair, clear and not misleading.
There will also be new product labels, which are designed to help investors understand what their money is being used for. These labels will be based on clear sustainability goals and criteria, according to the regulator.
Finally, there will be naming and marketing requirements, which will ensure that products cannot be advertised as having a positive impact on sustainability when this is not the case.
Sacha Sadan, director of environmental, social and governance at the FCA, said that putting in place this regime would allow investors to make better, more informed decisions about sustainable investments.
He added: “By improving trust in the sustainable investment market, the UK will be able to maintain its position at the forefront of sustainable finance, and capture the benefits of being a leading international centre of investment.”