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FCA proposes greenwashing rules to build trust in ESG investments

FCA greenwashing
Image credit: Shutterstock / Stockr

The UK’s financial regulator has proposed new rules to reduce greenwashing in ESG investments in a shakeup that would affect how fintech companies label their products.

The Financial Conduct Authority (FCA) said there would be restrictions on how words such as ‘ESG’, ‘green’ and ‘sustainable’ can be used in investment products.

The proposals are designed to ensure that consumers can have confidence that ESG investments are not using false marketing and comes as part of a wider FCA effort to establish trust in ESG investments.

“Greenwashing misleads consumers and erodes trust in all ESG products. Consumers must be confident when products claim to be sustainable that they actually are,” said Sacha Sadan, director, of environment social and governance at the FCA.

Plans include three categories for sustainable investment products, one of which will classify products as improving their sustainability on an ongoing basis.

The FCA has suggested an anti-greenwashing rule to cover all regulated firms.

Sadan added: “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.”

Potential FCA greenwashing regulation would require companies to have consumer-facing disclosures to help them understand how an investment is sustainable, along with detailed disclosures for investors that want more information.

Investor platforms and other product distributors would be required to make sure that product labels and consumer disclosures are clear and accessible.

Read more: Provenance raises $5m to tackle greenwashing with ‘transparency tech’