The Financial Conduct Authority (FCA) is to clamp down on greenwashing in a bid to protect consumers and improve trust in sustainable investment products.
The move is part of the regulator’s Strategy for Positive Change and its Business Plan 2022–23, which pledge to build trust and integrity in ESG-labelled instruments, products and their “supporting ecosystem”.
The watchdog is proposing a package of measures that include investment product sustainability labels and restrictions on using terms such as ‘ESG’, ‘green’ or ‘sustainable’.
It has noted a growth in the number of investment products being marketed as ‘green’ or making wider sustainability claims. Exaggerated, misleading or unsubstantiated claims about ESG credentials damage confidence in these products, it added.
The FCA is consulting on:
- Sustainable investment product labels that will give consumers the confidence to choose the right products for them
- Restrictions on how certain sustainability-related terms – such as ‘ESG’, ‘green’ or ‘sustainable’ – can be used in product names and marketing for products that do not qualify for sustainable investment labels. It is also proposing a more general anti-greenwashing rule, covering all regulated firms, to help avoid misleading product marketing.
- Consumer-facing disclosures to help consumers understand an investment product’s key sustainability-related features, including the disclosure of 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.
“Greenwashing misleads consumers and erodes trust in all ESG products,” said the regulator’s ESG director Sacha Sadan. “Consumers must be confident when products claim to be more 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 and places the UK at the forefront of sustainable investment internationally.”
The FCA intends to publish final rules by the end of the first half of 2023.