By Huw Jones
LONDON (Reuters) – UK financial control has proposed new rules from 2024 for funds and their managers to prevent consumers from being misled by ‘greenwashing’ or exaggerated claims about environmentally friendly investments.
Trillions of dollars have flowed into investments globally advertising their environmental, social and governance (ESG) credentials, but the rules on what constitutes ESG are uneven.
The UK listed responsible investment fund market grew 64% in 2021 to reach £ 79 billion ($ 89.34 billion), the Financial Conduct Authority said.
Britain wants to strengthen its global role in green finance and the FCA has proposed a package of measures, including “sustainability labels” for investment products and restrictions on the use of terms like ESG, “green” or sustainable.
The products will have information to help consumers understand the key characteristics of sustainability, with a more detailed level of disclosure for institutional investors.
The package also proposes a more general anti-greenwashing rule to cover the marketing of products that all FCA regulated companies must comply with.
Lorraine Johnston, Ashurst’s financial attorney, said the package marks a significant shift in rhetoric from incentivizing money transfers to sustainable investments, to now minimizing the risk of greenwashing.
“The new proposals place additional burdens on fund managers who are trying to do the right thing but who now face a mixed bag of international disclosure requirements,” said Johnston.
The European Union is already developing a package of measures to combat greenwashing and the United States is also writing new rules.
(FCA chart on ESG measures https://fingfx.thomsonmigration.com/gfx/mkt/movakmjdyva/FCA%20Graphic%20on%20ESG%20measures.PNG)
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, FCA’s director of environment, social and governance.
“This puts the UK at the forefront of sustainable investment internationally.”
Each firm is responsible for how it uses the new rules to classify a product, which means there is no FCA verification, but the watchdog may contest the categorization of any new funds submitted for authorization.
He said he was stepping up controls on sustainable products and improving enforcement.
A public consultation on the proposals is open until January. The rules will be finalized by mid-2023 but will not go into effect until at least June 2024 to give the industry time to adapt.
There will be further consultation on how the package could be applied to overseas funds, as many funds sold in the UK are listed in European Union countries such as Ireland and Luxembourg.
($ 1 = 0.8843 pounds)
(Reporting by Huw Jones; Editing by Andrew Heavens, Susan Fenton, and Mike Harrison)