UK financial watchdog proposes rules to stamp out ‘greenwashing’

Date:

- Advertisement -

Britain’s financial watchdog has proposed new rules from 2024 for funds and their managers to prevent consumers being mislead by ‘greenwashing’ or exaggerated claims regarding environmentally friendly investments.

Trillions of dollars have flowed globally into investments touting their environmental, social and governance (ESG) credentials, but rules on what constitutes ESG are patchy.

The market for UK-listed responsible investment funds grew 64% in 2021 to reach 79 billion pounds ($89.34 billion), the Financial Conduct Authority said.

Britain wants to bolster its global role in green finance and the FCA proposed a package of measures, including “sustainability labels” for investment products, and restrictions on how terms like ESG, ‘green’ or sustainable can be used.

Products will have disclosures to help consumers understand key sustainability features, with a more detailed level of disclosures for institutional investors.

The package also proposes a more general anti-greenwashing rule to cover marketing of products which all firms regulated by the FCA must comply with.

Lorraine Johnston, a financial lawyer at Ashurst, said the package marks a significant shift in rhetoric from incentivising the shift of money towards sustainable investments, to now minimising the risk of greenwashing.

“The new proposals place further burdens on fund managers who are trying to do the right thing but who now face a hodge podge of international disclosure requirements,” Johnston said.

The European Union is already finalising a package of measures to combat greenwashing, and the United States is also writing new rules.

FCA Graphic on ESG measures
FCA Graphic on ESG measures

The FCA says its proposals are a “starting point” for a regime that will be expanded and evolved over time.

“Greenwashing misleads consumers and erodes trust in all ESG products,” said Sacha Sadan, director of environment, social and governance at the FCA.

“This places the UK at the forefront of sustainable investment internationally.”

Each firm is responsible for how it uses the new rules to classify a product, meaning there is no FCA vetting, but the watchdog could challenge the categorisation of any new fund submitted for authorisation.

It said it was stepping up checks on sustainable products and enhancing enforcement.

A public consultation on the proposals is open until January. The rules will be finalised by mid-2023 but not come into force until at least June 2024 to give industry time to adjust.

There will be a further consultation on how the package could be applied to overseas funds, given that many funds sold in Britain are listed in European Union countries like Ireland and Luxembourg.

- Advertisement -

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Share post:

Subscribe

ADVERTISEMENT

Popular

More like this
Related

Nigerian naira falls to new record low on official market -FMDQ Exchange

Nigeria's naira currency fell to a new record low...

Zambia’s kwacha is Africa’s best performing currency in 2024

Zambia's kwacha is Africa's best performing currency against the...

Newmont plans to divest six mines, cut jobs to reduce debt after Newcrest buy

Newmont Corp (NEM.N), opens new tab on Thursday beat analysts' estimates...

Gold Fields eyes rapid ramp-up at new Chile mine, lifts output forecast

South Africa's Gold Fields (GFIJ.J), opens new tab on Thursday raised...