ew rules aimed at cracking down on the “greenwashing” of investment products have been proposed by the City regulator.
The growth of “exaggerated, misleading or unsubstantiated” claims made about environmental, social and governance (ESG) credentials of products is damaging consumer confidence and could hinder transition to a net-zero economy, the Financial Conduct Authority (FCA) said.
The package of new measures includes the requirement for “investment sustainability labels” on products and restrictions on how terms such as “ESG”, “green” and “sustainability” can be applied.
The FCA’s director of ESG Sacha Sadan said the rules would “raise the bar” by setting robust regulatory standards that place the UK “at the forefront of sustainable investment internationally”.
He added: “Greenwashing misleads consumers and erodes trust in all ESG products.
“Consumers must be confident when products claim to be sustainable that they actually are.
This supports investment in solutions to some of the world’s biggest ESG challenges.
“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.”
Three categories of sustainable investment product labels would be introduced under the proposals, including one underpinned by “objective criteria” on products’ sustainability over time.
Restrictions on sustainability-related terms would be applied to the names and marketing of products which do not qualify for these labels.
The FCA is also proposing a general “anti-greenwashing rule” for all regulated firms to stamp out misleading claims.
Other measures would require up-front disclosure of investment products’ sustainability features to retail and institutional investors, including elements that consumers may not expect to be part of a product.
The FCA said such details can often be “buried” in documents, with “excessive” costs associated with searching for and understanding relevant information.
Tighter demands would also be imposed on investment platforms to make sustainability information more accessible.
The FCA added it is now stepping up its “supervisory engagement” on sustainable finance and enhancing its enforcement strategy.
This includes conducting checks on how firms have responded to a letter sent to fund managers in July 2021, which set out “guiding principles for the design, delivery and disclosure of sustainable investment products”.
The consultation on the proposals runs until January, with the new rules expected to introduced before June 2023.
The initial focus is on UK-based funds and portfolio management, but the FCA said it intends to consult on expanding the scope to overseas products at a later date.
The proposals support the delivery of the Government’s ambition set out in the roadmap to sustainable investing published in October 2021, the FCA added.
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