FCA outlines plans to combat greenwashing
The City regulator will place restrictions on how terms like ‘ESG’, ‘green’ or ‘sustainable’ can be used, as part of its plans to clamp down on greenwashing.
The Financial Conduct Authority (FCA) said it will step up its supervision of the sustainable finance sector in an effort to protect consumers, and help build trust in investment instruments which have been labelled as having environmental, social and governance (ESG) credentials.
“Greenwashing misleads consumers and erodes trust in all ESG products,” said Sacha Sadan, the FCA’s director of ESG.
Read more: Less than two months until the Peer2Peer Finance Awards!
“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.”
The FCA intends to introduce sustainable investment product labels, as well as placing restrictions on how certain sustainability-related terms are used. This will help avoid the misleading marketing of products, the FCA said.
Firms offering sustainable finance products will also have to make more detailed consumer-facing disclosures.
Read more: FCA to investigate impact of Big Tech
There will also be requirements for distributors of products, such as investment platforms, to ensure that their labels and consumer-facing disclosures are accessible and clear to consumers.
The plans have been welcomed by industry stakeholders.
“The proposals are a necessary and positive intervention in the market for green and sustainable financial products,” said Becky O’Connor, head of pensions and savings at interactive investor and author of The ESG Investing Handbook.
“Investors who want to make their money make a difference need to be able to trust that the investment they are buying actually does what it says on the tin.
“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.”
Read more: Green evolution: Exclusive interview with Relendex’s Paul Sonabend