FCA looks to tackle sustainability spin doctors

October 28, 2022

The Financial Conduct Authority (FCA) wants a crackdown on greenwashing investment companies using misleading sustainability spin.

The UK regulator believes there needs to be agreed and recognised labels on products and restrictions on firms indiscriminately using marketing terms like ‘ESG’, ‘green’ and ‘sustainable’.

It is hoped the new measures would help protect and inform customers better and lift overall trust levels in investment products presented as sustainable.

Ottilia Csoti, an associate at law firm Fladgate who specialises in financial regulation, banking and finance, has taken a close look at the proposals outlined in the FCA's ESG Strategy and Business Plan and has concluded they are a mixed bag.

She said: “Clear new categories and labels for funds will undoubtedly be a good step towards reducing the risk of greenwashing in investments products.

“But the proposals allow for the inclusion of coal, gas and oil investments under certain conditions.

“And - given the relatively long lead time for these measures and the scale of the climate crisis - it likely means these measures will be of limited effect in urgently directing capital flows away from investments that further the consumption of fossil fuels.”

The FCA’s calls come after a spike in the number of products being marketed as ‘green’ or making wider sustainability claims.

The independent regulator feels that exaggerated, misleading or unsubstantiated claims about ESG credentials are damaging confidence in the market.

The body’s proposals include:

• Product labels split into categories – including one for products improving their sustainability over time – which are underpinned by objective criteria
• Restrictions on how terms like ‘ESG’, ‘green’ or ‘sustainable’ can be used in product names and marketing for products which do not qualify for the sustainable investment labels
• Consumer-facing disclosures about key sustainability-related features of products, and a requirement to disclose investments a consumer may not expect to be held in the product
• More detailed disclosures which are suitable for institutional investors or retail investors that want to know more
• Requirements for distributors of products, such as investment platforms, to ensure labels and consumer-facing disclosures are accessible and clear to consumers

FCA EGA director Sacha Sadan said: “Our proposed rules will help consumers and firms build trust in this sector and support 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.”