FCA clamps down on greenwashing with new set of rules

The measures are among several potential new rules which will improve trust in sustainable investment products. The work forms part of the commitment made in the FCA's ESG Strategy and Business Plan to build trust and integrity in ESG-labelled instruments, products and the supporting ecosystem.


There has been growth in the number of investment products marketed as ‘green’ or making wider sustainability claims. Exaggerated, misleading or unsubstantiated claims about ESG credentials damage confidence in these products. 
The FCA wants to ensure that consumers and firms can trust that products have the sustainability characteristics they claim to have. 


Sacha Sadan, the FCA’s Director of Environment Social and Governance, said:
“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 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 – such as ‘ESG’, ‘green’ or ‘sustainable’ – 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. This will 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.


Responding to FCA’s greenwashing proposals, Anthony Baker, Founder & CEO of Satellite Vu, commented: "Greenwashing misleads customers and is detracting from products and solutions that are genuinely making a positive impact on the planet by reducing emissions and harmful pollutants. 


"The FCA ought to be commended for proposing new rules and initiatives to identify true sustainable investment to solve global challenges around ESG-labelled instruments.


"'ESG', 'green' and 'sustainable' have become buzzwords for Net Zero activities and subsequently, some organisations have jumped on the opportunity to appear to be doing good but, in reality, their activities aren't well defined and rarely provide a tangible impact."


"Categorising sustainability language is important and the challenge we face is that of measuring global climate impact across multiple and varied investment portfolios. 


"Satellite technology can play a big role in environmental accountability, providing trustworthy and reliable data with high-resolution thermal monitoring able to measure across a number of indices, such as the thermal footprint of buildings and industries, analysing the energy efficiency of buildings (as well as their exposure to extreme heat), and capturing evidence of thermal water pollution and environmental degradation, with greater accuracy at a higher resolution than ever before. 


"This technology can strengthen our understanding and categorisation of climate activity as well as verify sustainability initiatives to hold organisations accountable and rebuild integrity and confidence in the market."