FCA proposes anti-greenwashing rules to protect sustainable investors

The Financial Conduct Authority (FCA), the UK’s financial regulator, has proposed an investment labelling regime as part of a plan to promote sustainable investing and to crack down on greenwashing.

Issuing a consultation paper on Sustainability Disclosure Requirements (SDR), the regulator said it was concerned that “exaggerated or misleading sustainability-related claims” were made about investment products that “don’t stand up to scrutiny”.

The regulator proposes four investment label categories for sustainable investment products, as well as consumer-facing disclosures.

The four investment product labels, which are meant to aid consumers in investment choices, are:  

  • No sustainable label: Products that do not meet the criteria for a sustainable label;
  • Sustainable Focus: For products investing in assets that are environmentally or socially sustainable;
  • Sustainable Improvers: For products investing in assets to improve environmental or social sustainability over time;
  • Sustainable Impact: For products investing in solutions to environmental or social problems and focused on creating a measurable impact.

Initially aimed at asset managers, the regime may be extended to asset owners with regard to their investment products.

Sacha Sadan, the FCA’s director of ESG, said: “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.”

Lauding the FCA’s move, Galina Dimitrova, director, investment and capital markets, at the Investment Association, said: “A labelling system can play a valuable role in helping savers navigate the growing number of responsible investment products and compare the sustainability credentials of their investments. 

“We look forward to working with our industry, regulators, and other stakeholders to deliver an effective labelling system, which can be easily understood by investors and help build trust in this important area of the fund market.”

Beth Lloyd, head of responsible wealth management strategy at wealth manager Quilter, said that the lazy labelling of investment products in recent times has been a floundering experience both for consumers and the industry at large.

“Having clear definitions to adhere to and refer back to will not only facilitate better understanding but also result in better outcomes as expectations and reality are more likely to be aligned,” Lloyd added.

The FCA’s set of measures is to be finalised by end of June 2023.

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