FCA to Clean Up Greenwashing

Published / Last Updated on 07/11/2022

As COP 27 starts in Egypt and the weather in the UK is wilder than normal, it is perhaps timely that the Financial Conduct Authority (FCA) has issued a consultation paper with plans to ‘clean up’ greenwashing by companies and investment funds and make it easier for investors, fund managers and financial advisers.  The FCA wants to ensure that we can all have more confidence when investing in socially responsible companies and in a sustainable manner.  There are many firms that are being accused of ‘greenwashing’ to attract your money and the FCA wishes to stop this.

What is ‘Greenwashing’?

Organisations making unsubstantiated claims to investors that their product or service is environmentally friendly or having a greater impact than what they are actually achieving.

Example of Greenwashing

Certain car manufacturers are being investigated for cheating on their air pollutions tests having installed hidden software that can detect when a vehicle is being tested and the software kicks in to automatically adjust the performance of the engine to deliver better emissions results despite the vehicle not being able to deliver this in normal driving conditions.  The are millions being handed out in fines and compensation.

FCA 5 Point Plan to Clean Up

1.  Sustainable Investment Product Labels

The FCA proposes to have 5 product labels to help us more easily identify the good, the bad and the ugly.  We believe a little more work is needed on the label titles:

  • Not Sustainable.
  • Responsible (may have some sustainable investments inside).
  • Transitioning - building up sustainable exposure but with a low focus on achieving full investment sustainability.
  • Aligned - building up sustainable exposure with a high focus on achieving full investment sustainability.
  • Impact - investing only in areas that have positive environmental and social impact.

2.  Restrict Use of ‘Green’ Terms

Not being allowed to use the terms “ESG” (environmentally friendly, socially responsible, and corporate governance), “Green” and “Sustainable” in marketing materials if their product or service has no valid ‘sustainable label’ (see above.

3.  Consumer Disclosure

Key facts information and documents explaining what the fund invests in which, the FCA suggests may surprise investors as to what the fund invests in.

4.  More Detailed Disclosure

More detailed information on exactly where the fund invests in when an investor wishes to drill down past the simple consumer disclosure information.

5.  Clear and Accessible

Making sure that all sustainability labels and disclosure information are clear, fair, not misleading and are fully accessible in a range of formats.

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