The Financial Conduct Authority (FCA) has proposed a package of new measures to tackle the industry challenge of greenwashing.
According to the FCA, the measures are among several potential new rules which will protect consumers and improve trust in sustainable investment products. 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.
FCA said, “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 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.”
The Authority is proposing to introduce sustainable investment product labels that will give consumers the confidence to choose the right products for them. This will include three categories – with one being for products improving their sustainability over time.
Also being introduced will be 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.
Consumer-facing disclosures will also be introduced, to 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. In addition, more detailed disclosures, suitable for institutional investors or retail investors that want to know more and requirements for distributors of products, such as investment platforms, to ensure that the labels and consumer-facing disclosures are accessible and clear to consumers.
FCA director of ESG Sacha Sadan said, “Greenwashing misleads consumers and erodes trust in all ESG products. 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 recently fined Gatehouse Bank over £1.5m for substantial weaknesses in its financial crime system and controls.
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