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ESG products in UK: FCA proposes new rules against greenwashing

To strengthen the fight against greenwashing, the Financial Conduct Authority (FCA) is proposing a package of new measures for ESG products marketed in the UK. Mandatory sustainability labeling and restrictions on the use of terms such as "ESG", "green" or "sustainable" are planned, for example. We have summarized the most important key points for you in our current blog post

Desislava Marvakova
October 28, 2022

The Financial Conduct Authority (FCA) is proposing a package of new measures to tackle greenwashing, including mandatory sustainability labels for investment products and restrictions on the use of terms such as "ESG", "green" or "sustainable".

The number of investment products marketed as "green" or making wider sustainability claims is steadily increasing. Exaggerated, misleading or unsubstantiated claims regarding ESG characteristics damage confidence in these products.  

With its initiative, the FCA wants to ensure that consumers and businesses in the UK can rely on the seriousness of the advertised sustainability properties.  

Sacha Sadan, FCA Director of Environment, Social and Governance, comments:

'Greenwashing misleads consumers and erodes trust in all ESG products. Consumers must be confident when products claim to be more sustainable than they actually are. Our proposed rules will help consumers and firms build trust in this sector. This supports 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.'  

 

The following measures have been proposed:

- Labels that give consumers more confidence in choosing the sustainable products that are right for them. Providing for three categories underpinned by objective criteria; including one for products that improve their sustainability over time.  

- Preventing the use of certain sustainability-related terms - e.g., "ESG", "green" or "sustainable" - in product names and when marketing products that do not qualify for the sustainable investment labels. In addition, an even more general anti-greenwashing rule is proposed that applies to all regulated companies. This should help prevent misleading product marketing.  

- Consumer-facing disclosures to help investors understand the key sustainability-related features of a product. This includes disclosure of investments that one would not expect to be included in the product.  

- More detailed disclosures for institutional or retail investors who want even more information.

- Requirements for distributors of products, such as investment platforms, to ensure that labels and product information are accessible and clearly worded for consumers.

The consultation on the proposed measures is open until 25 January 2023 and the FCA intends to publish the final rules by the end of the first half of 2023. The core elements will initially focus on UK-based funds and portfolio management.

The FCA is also increasing its regulatory engagement in the area of sustainable finance and improving its enforcement strategy.  

Cleversoft regularly monitors current regulatory developments in the UK. We will continue to keep you informed and offer you appropriate solutions as soon as action is required.

If you have any questions about our ESG services, please contact us.