The UK’s financial watchdog has unveiled its new rules forcing investment firms to ensure their sustainability claims are “fair, clear and not misleading” in a bid to stamp out greenwashing.
The Financial Conduct Authority (FCA)’s long-awaited final framework is designed to give people more confidence that financial products making claims about sustainability are backing them up with real action.
Sacha Sadan, the FCA’s ESG director, said: “We’re putting in place a simple, easy to understand regime so investors can judge whether funds meet their investment needs – this is a crucial step for consumer protection as sustainable investment grows in popularity.
“By improving trust in the sustainable investment market, the UK will be able to maintain its position at the forefront of sustainable finance, and capture the benefits of being a leading international centre of investment.”
The new package of measures includes an anti-greenwashing rule for authorised firms, four investment labels and new rules and guidance for the marketing of investment funds on the basis of sustainability. It follows months of consultation, research and engagement with a range of stakeholders, including industry, other regulators and consumer groups.
Four new sustainability labels
The investment labels, set to come into force in May 2024, will be:
- Sustainability Focus – for products investing in assets that are environmentally or socially sustainable
- Sustainability Improvers – for products investing in assets to improve the environmental or social sustainability over time
- Sustainability Impact – for products investing in solutions to environmental or social problems targeting measurable impact
- Sustainability Mixed Goals – for products investing with a combination of the attributes of the Focus, Improvers and/or
Impact labels
The labels, which don’t have a hierarchy, mean that people who want to do good with their money will be able to more easily choose investments that match their aims and values.
The report, released today, says: “Our aim with this Sustainability Disclosure Requirements and investment labels regime is simple – financial products that are marketed as sustainable should do as they claim and have the evidence to back it up. The regime will support consumers in navigating their investments with trust that the products they are buying do as they say they will.”
The market for ESG funds is expected to rise to a massive $34 trillion (£26.9 trillion) by 2026. However, a recent survey from the Association of Investment Companies shows the proportion of investors who are concerned about greenwashing has jumped from 48 per cent in 2021 to 63 per cent in 2023.
The FCA said its research shows that while 80 per cent of consumers wanted their money to be “do good and deliver a return”, 70 per cent felt that many investments claiming to be sustainable actually were not.
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