This article is from our Good Guide to Avoiding Greenwash, available to download free here.
The term “greenwashing” was coined in the 1980s to describe outrageous corporate environmental claims. Three decades later, the practice has grown vastly more sophisticated.
Often these false or exaggerated claims are made to mislead increasingly ethically minded consumers, and to improve brand reputation.
Recently, adverts from Shell, Repsol and Petronas were banned by the UK advertising regulator for touting investments in renewable energy without mentioning the extent of each company’s polluting activities.
Now, the Financial Conduct Authority (FCA) is clamping down on greenwashing in the financial sector.
New anti-greenwashing rule
The FCA has issued a stand-alone anti-greenwashing rule that will apply to all its regulated firms, including banks, financial advisers, investment platforms, and pension providers. The rule is being rolled out alongside a larger set of regulations aiming to create greater clarity for consumers over what is, and is not, sustainable investing.
The anti-greenwashing rule is simple:
‘Sustainability-related claims about financial products and services need to be clear, fair, and not misleading.’
As the complexity of solutions increases, coupled with growing investor demand for doing well by doing good, this clarity is needed more than ever.
Read more on the new anti-greenwashing rule
Why it’s so important
Currently, any investment fund or portfolio can use terms like ethical, ESG (environmental, social and governance), green, climate, or impact without any mandatory minimum standards. It’s also rare to see sustainability reporting attached to such investments – in these cases you never know whether claims have been delivered upon. This has resulted in significant well-intentioned capital going to unambitious places and damaging trust in sustainable investing.
At EQ Investors we manage a range of sustainable portfolios that have unique aims, suitable for a range of sustainability preferences. Despite the absence of regulation, we have been providing sustainability and impact reporting for several years. We believe this is the only way you can genuinely avoid allegations of greenwash and build trust. Our B Corp certification and Good Egg mark from Good With Money also help show that we are a business governed to deliver genuine positive impacts.
What you can expect
The anti-greenwashing rule ‘went live’ on 31 May 2024. From then, when working with a financial adviser or an investment manager, any communication about sustainable, green or ESG investments must include a clear explanation of the approach, any technical terms should be explained and supported by reporting on delivered outcomes.
This is positive news if you want to best align your investments with sustainability goals. It also shines the light on less ambitious investments, helping lift the bar, and moving us closer to a financial system that actually works for people and planet.
Risk warning: when you invest, your capital is at risk.
