The Financial Conduct Authority’s new anti-greenwashing rule – the first to come into effect from a wider package of measures – requires financial institutions and firms to ensure retail investors are given accurate information on sustainability
Financial organisations and firms are being told to ensure retail investors receive correct and accurate information about sustainability, as a new rule combating greenwashing takes effect.
The Financial Conduct Authority (FCA) said that claims about the environmental focal points of investment services and products should be “fair, clean and not misleading”, effective starting Friday. The regulation constitutes the first part of a broader set of measures from the FCA intending to confront greenwashing issues.
Sacha Sadan, who oversees environmental, social, and governance matters at the FCA, stated: “These new rules will help people make informed decisions about their money. They should give greater faith that green investments people choose have been sold fairly and marketed accurately.”
The FCA initially revealed these measures in November after consulting with industry insiders, other regulators, and consumer groups. Companies have had half a year to get ready for this anti-greenwashing regulation, which corresponds to existing guidance laid out by the Competition and Markets Authority and Advertising Standards Authority on the matter.
Just last month, the FCA launched its finalised guidelines alongside instances of how companies can adhere to the requirement. This contained advice for businesses to ponder “carefully about whether they have the appropriate evidence to support their claims”.
In a bid to help companies implement the finalised FCA guidance that many were given little time to digest, PwC and the UK Sustainable Investment and Finance Association (UKSIF) unveiled recommendations on Thursday. James Alexander, who heads up UKSIF, said: “The rule is very wide in scope, and firms must work hard to ensure their organisations are communicating across different teams so that products are being labelled and marketed accurately to clients and consumers.”
He added, “Our sense is that this has been an administrative challenge, but one which firms recognise as important and valuable.”
Lindsey Stewart, Morningstar’s director of investment stewardship research, said: “While this ultimately helps investors make the right choices to match their sustainability needs, compliance is proving to be a heavy lift for many providers.”
Meanwhile, a spokesperson for UK Finance, said: “Given the tight implementation timetable for firms following the publication of the guidance in April, we recommend the FCA takes a proportionate approach when applying these rules. Such an approach would be in line with existing rules on communications and financial promotions, and help support the growth in sustainable and transition products and services.”
The watchdog has unveiled a package of measures, including sustainability disclosure requirements and an investment product labelling system. These are designed to help customers understand where their money is being invested and ensure any claims can be substantiated with evidence.
These measures will come into effect for asset managers from July 31. From December 2, the FCA will also enforce a naming and marketing requirement for asset managers. This is intended to prevent products from being marketed as having a positive impact on sustainability if they do not.
The FCA is currently considering extending these measures to portfolio managers firms that manage a diversified group of investments for consumers. This would mean they could potentially apply to a broader range of products.