In a bid to clamp down on greenwashing, the Financial Conduct Authority (FCA) is proposing a package of new measures including investment product sustainability labels and restrictions on how terms like ESG, green or sustainable can be used.
The measures are among several potential new rules aimed at protecting consumers and improving trust in sustainable investment products.
The move follows recent growth in the number of investment products marketed as green or making wider sustainability claims. Exaggerated, misleading or unsubstantiated claims about environment social and governance (ESG) credentials damage confidence in these products, stated the regulator.
Sacha Sadan, the FCA’s director of ESG, 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 - so our proposed rules will help consumers and firms build trust in this sector.
“We are raising the bar by setting robust regulatory standards to protect consumers in line with our wider FCA strategy.“
The FCA is proposing to introduce:
- Sustainable investment product labels that will give consumers the confidence to choose the right products for them. There will be three categories - including one for products improving their sustainability over time - underpinned by objective criteria.
- Restrictions on how certain sustainability-related terms 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 to 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.
The consultation is open until 25 January 2023, with final rules expected by the end of the first half of next year.
Last week, The FCA also sought views on the potential competition benefits and harms from big tech firms’ entry into a range of retail financial services sectors.
Sheldon Mills, executive director of consumers and competition, said: “In recent years, big tech’s entry into financial services, in the UK and elsewhere, has demonstrated their potential to disrupt established markets, drive innovation and reduce costs for consumers.
“We want to make sure that these benefits are fully realised while, at the same time, ensuring good consumer and market outcomes.”
The FCA has published analysis focusing on the potential competition impacts of big tech’s entry in four vital retail sectors: payments, deposit taking, consumer credit and insurance.
No regulatory changes are being proposed at this stage, and the paper aims to stimulate discussion to inform the regulatory approach to big tech firms as part of the new UK pro-competitive regime for digital markets.
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