The Financial Conduct Authority (FCA) has proposed new measures to clamp down on greenwashing, including restricted use of terms like ‘ESG’, ‘green’, or ‘sustainable’.
The move comes as investment products marketed as ‘green’ or asserting sustainability grow in number. Exaggerated, misleading, or unsubstantiated claims about ESG credentials potentially erode trust in these products. The FCA’s proposed rules would protect consumers and firms by giving them back their confidence in the sustainability characteristics products claim to have.
The proposal is part of FCA’s ESG strategy and business plan commitment to build trust and integrity in ESG-labelled instruments and their supporting ecosystem.
“Greenwashing misleads consumers and erodes trust in all ESG products,” said Sacha Sadan, the FCA’s director of environment social and governance. “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 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 proposed three standardised categories of sustainable investment product labels, including one for products which improve their sustainability over time. It proposed restrictions on the use of terms such as ‘green’ or ‘sustainable’ in product names and marketing and a general anti-greenwashing rule covering all regulated firms.
The FCA also proposed accessible, consumer-facing disclosures enabling consumers to understand the key sustainability-related features of an investment product and more detailed disclosures for institutional and retail investors that would like to know more.
A consultation on the proposed rules is open until January 25, 2023. The FCA plans to publish final rules by the first half of 2023.
