FCA proposes greenwashing measures
26 October 2022 UK
Image: tanaonte
The Financial Conduct Authority (FCA) has proposed a series of measures to tackle greenwashing in line with its wider Environmental, Social and Governance (ESG) Strategy and Business Plan. In doing so, it aims to improve investor trust in sustainable investment products and protect consumers.
The proposals come in response to the growing number of investment products advertised as ‘green’ or ‘sustainable’, which can be false or exaggerated due to lack of regulation. As such, the products and the wider ecosystem are mistrusted, damaging the industry and discouraging sustainable investments.
The FCA offers several suggestions to combat greenwashing. Firstly, more effective labelling of ESG products, including a category for those improving their sustainability over time.
Additionally, consumer-facing disclosures must be provided and made accessible to increase transparency. All disclosures must be detailed and suitable for both retail and institutional investors.
Restrictions should also be placed on how sustainability-related terms are used in marketing and product names, the authority says.
Sacha Sadan, director of ESG at the FCA, says: “Greenwashing misleads consumers and erodes trust in all ESG products. Consumers must be confident when products claim to be sustainable that they actually are. We are raising the bar by setting robust regulatory standards to protect consumers in line with our wider FCA strategy.”
Commenting on the impact of the proposals, Ben Richmond, CEO of global fintech CUBE, says: “Compliance teams may welcome the consultation for the clarity it will eventually provide. However, it will lead to yet more regulatory change, analysis and implementation for firms. For those already struggling with the SFDR or the TCFD, the promise of yet more disclosure requirements may not be so welcome.
“It is a double-edged sword – a noble and essential goal, but compliance teams will need sufficient resources, time and technology to manage.”
The proposals come in response to the growing number of investment products advertised as ‘green’ or ‘sustainable’, which can be false or exaggerated due to lack of regulation. As such, the products and the wider ecosystem are mistrusted, damaging the industry and discouraging sustainable investments.
The FCA offers several suggestions to combat greenwashing. Firstly, more effective labelling of ESG products, including a category for those improving their sustainability over time.
Additionally, consumer-facing disclosures must be provided and made accessible to increase transparency. All disclosures must be detailed and suitable for both retail and institutional investors.
Restrictions should also be placed on how sustainability-related terms are used in marketing and product names, the authority says.
Sacha Sadan, director of ESG at the FCA, says: “Greenwashing misleads consumers and erodes trust in all ESG products. Consumers must be confident when products claim to be sustainable that they actually are. We are raising the bar by setting robust regulatory standards to protect consumers in line with our wider FCA strategy.”
Commenting on the impact of the proposals, Ben Richmond, CEO of global fintech CUBE, says: “Compliance teams may welcome the consultation for the clarity it will eventually provide. However, it will lead to yet more regulatory change, analysis and implementation for firms. For those already struggling with the SFDR or the TCFD, the promise of yet more disclosure requirements may not be so welcome.
“It is a double-edged sword – a noble and essential goal, but compliance teams will need sufficient resources, time and technology to manage.”
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