26 Oct Financial regulator calls for stricter measures to eliminate ‘Greenwashing’
The UK financial regulator, Financial Conduct Authority (FCA), has announced new rules to restrict customers from being impacted by exaggerated claims from ‘environmentally-focused’ investments. Ethical or environmental investing incorporates a range of topics, from tackling climate change to the impacts of corporate behaviour.
Within this space, the increase in ESG investing over the last few years means it has become a dominant part of the global financial industry, with billions invested in funds dedicated to improving our planet. The FCA has stated, however, that misleading or unsubstantiated claims about ESG credentials impact confidence in these particular services and products.
In an attempt to tackle greenwashing, where disputable claims can distort customers into thinking products are more environmentally positive than they are – the FCA has prepared a package of specific measures and restrictions. These plans include investment-product sustainability labels and restrictions, on how terms like ‘ESG’, ‘Green’ or ‘Sustainable’ are applied.
Sacha Sadan, the ESG director for the FCA, explains that customers must have assurance when products are claiming to be more sustainable than they are. The proposed rules of the FCA will support customers and businesses develop trust and confidence in this market.
Beth Lloyd, the head of responsible wealth management strategy at Quilter, explains that this is a critical step forward in providing people with the necessary protection and measures required within the responsible investment. Lloyd refers to the labelling of investment products as ‘ESG’ has not been productive and has created further confusion for customers and the industry. Delivering clear definitions to follow and refer back to will generate better understanding and create better outcomes, as expectations and reality are more likely to be aligned.
Becky O’Connor from Interactive Investors explains that investors who are committed to making a difference with their money need to be able to trust the investment they choose does what it states. With such a range of rating systems and definitions, it can be challenging to understand what investments are helping the planet and resulting in people losing trust in the whole concept of sustainable investment.
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