Demand for financial products that make a positive difference in the world has rocketed in recent years, driven largely by the increasingly visible signs of climate change and social issues exacerbated by Covid-19.
This is, of course, a good thing. And it NEEDS to happen. Sustainable finance can be a powerful force for positive change. It could be the deciding factor in whether the world is able to fix the climate crisis, protect nature, and improve inequality – or not.
But while public desire to get behind finance that does good in the world has grown at speed, its ability to drive these important changes is being held back by the simultaneous rise of ‘greenwashing’. This is where financial providers mislead well-intentioned customers by making inflated claims about the sustainability credentials of their products.
It makes it much harder for everyday financial consumers and investors (unless they want to spend hours researching and comparing providers and funds) to feel confident their money is going to the right places – and kept away from the bad.
A recent study by sustainable bank Triodos reveals the worrying influence of greenwashing on consumers. It shows that more than half (55 per cent) of Brits who consider themselves to be ‘green’ savers and investors unwittingly have money with providers that fund fossil fuels.
Tough new rules to tackle greenwashing
The GOOD news is that this is starting to change. This year, the UK’s regulatory body, the Financial Conduct Authority (FCA), is bringing in tough new rules that aim to crack down on greenwashing and give consumers the confidence to put their money to work for positive change.
It won’t be an instant fix, but it’s an exciting and much-needed framework that will help investors – even those with little or even no experience – to choose sustainable investments that DO what they say they will.
FCA Director of ESG Sacha Sadan said the rules will “raise the bar” by setting robust regulatory standards that place the UK “at the forefront of sustainable investment internationally”.
While the rules themselves are crucial, it’s equally important that people looking to invest (or use any financial product) sustainably understand what they mean and how to use them.
He added: “Greenwashing misleads consumers and erodes trust in all ESG products. Consumers must be confident when products claim to be sustainable that they actually are.”
The FCA’s own research found that 80 per cent of investors want their money to “do good and deliver a return,” but 70 per cent thought many investments that claim to be sustainable actually are not.
Therefore, the FCA says, its aim with the new measures – known as the Sustainability Disclosure Requirements (SDR) – is to ensure “financial products that are marketed as sustainable.. do as they claim and have the evidence to back it up.”
But while the rules themselves are crucial, it’s equally important that people looking to invest (or use any financial product) sustainably understand what they mean and how to use them.
That’s why we created The Good Guide to Avoiding Greenwash.
In this guide, we walk you through the new package of rules and what they mean – jargon-free as always! – so you can feel confident in making informed choices about which financial providers and products best align with your needs AND values.
The guide also includes articles from our co-sponsors – all sustainable finance specialists – on the issue of greenwash and the new rules.
- Triodos Bank: Sorting the truth from the greenwash
- EQ Investors: Clamping down on greenwashing
- WHEB Asset Management: The exciting potential of impact investing in listed equities
- Ethex/Energise Africa: Why direct investing = transparent impact
