FCA proposes wider anti-greenwashing rules

Among these new rules include changes to investment product sustainability labels and restrictions on how terms like “ESG”, “green” or “sustainable” can be used. 

This shift has been driven by the growth in the number of investment products marketed as “green” or making wider sustainability claims. As such, the FCA wants to ensure consumers and firms can trust products have the sustainability characteristics they claim to have. 

The regulator’s director of environment, social and governance 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 is also proposing a more general anti-greenwashing rule covering all regulated firms and consumer-facing disclosures to help consumers understand the key sustainability-related features of an investment product. 

Additionally, it wants regulated firms to provide more detailed disclosures that are suitable for institutional or retail investors that want to know more, as well as requirements for distributors of products to ensure the labels and consumer-facing disclosures are accessible and clear to consumers.

In response, financial services company Hargreaves Lansdown’s head of investment analysis and research Emma Wall welcomed the efforts by the regulator to bring “some clarity” to the growing number and wide variety of responsible investment funds. 

She added: “We know that confusing terminology can stop potential investors from selecting the right funds for them - for their personal wealth goals and ethical priorities. Flows into responsible investment funds have held up well against a challenging market backdrop this year, but with this popularity comes the risk of greenwashing.

“Greater clarity and terminology homogeny within the sector, alongside a crackdown on greenwashing, will help drive better outcomes for investors as well as the planet and society. It is important to get these labels right as we’ll be working with them for years to come and so we look forward to exploring the proposals in more detail considering how they will assist clients in making sustainable choices.”