The UK Financial Conduct Authority has published proposals for investment products that could mean labels and restrictions on the use of terms including ESG, green or sustainable.
The FCA says that exaggerated, misleading or unsubstantiated claims about ESG credentials damage confidence in investing products and that it wants to ensure that consumers and firms can trust that products have the sustainability characteristics they claim to have.
The FCA is proposing to introduce:
Sustainable investment product labels in three categories – including one for products improving their sustainability over time – underpinned by objective criteria.
Restrictions on how certain sustainability-related terms – such as ‘ESG’, ‘green’ or ‘sustainable’ – can be used in product names and marketing for products which don’t qualify for the sustainable investment labels. It is also proposing a more general anti-greenwashing rule covering all regulated firms. This will help avoid misleading marketing of products.
Consumer-facing disclosures to help consumers understand the key sustainability-related features of an investment product – this includes disclosing investments that a consumer may not expect to be held in the product.
More detailed disclosures, suitable for institutional investors or retail investors that want to know more.
Requirements for distributors of products, such as investment platforms, to ensure that the labels and consumer-facing disclosures are accessible and clear to consumers.
The FCA is also stepping up its supervisory engagement on sustainable finance and enhancing its enforcement strategy. This includes checking how firms have responded to the expectations set out in the Dear Chair letter issued to authorised fund managers in July 2021.
Sacha Sadan, the FCA’s Director of Environment Social and Governance, 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.’