The Financial Conduct Authority has published its long-awaited rules to curb greenwashing in investments and label sustainable funds.
The regulator first sought views on the scheme in October 2022 and the publication of the outcomes has been delayed twice.
The FCA received almost 250 responses and claims it has tested the new rules with 15,000 people.
The new package of measures includes an anti-greenwashing rule for authorised firms, four investment labels and new rules and guidance for the marketing of investment funds on the basis of sustainability characteristics.
Firms have now been warned to prepare for new anti-greenwashing rules and UK asset managers told to decide whether to label products that aim to achieve sustainable outcomes.
It will mean the FCA will be able to review and challenge any new funds submitted to be authorised and could take enforcement action where "serious misconduct" has taken place.
It comes as ESG funds are expected to increase to $34trn (£26.9trn) by 2026.
The FCA said its research shows that while 80 per cent of consumers wanted their money to be “do good and deliver a return”, 70 per cent of investors though many investments that claim to be sustainable actually were not.
Sheldon Mills, executive director of consumers and competition at the FCA said the regulator has listened “very carefully” to stakeholders and consumers on the proposals.
He said: “We need to keep up with the pace of change and offer products that consumers want and understand.”
The policy statement, released today (November 28), said: “We have been concerned that some firms may be making misleading or exaggerated sustainability-related claims about their investment products.”
This includes plans to set up an independent working group for financial advisers to help advisers feel more comfortable talking to their clients about sustainability.
Sacha Sadan, director of ESG at the FCA, said the group will be “short term” and the FCA will see whether further consultation arises from it.
He added: “It is to do with education, training and information, and I think that will be really important as they can certainly get confused with the terms and what consumers want and how they are going to apply it.
“Because the labelling regime is new, we thought it would be good that we were involved in trying to help that part of the market, not just the asset management and asset owner side of things.”
The new labels
Following consultation, the FCA has decided to introduce a fourth label, ‘sustainability mixed goals’ where just three were originally planned.
It is thought 630 funds in the UK could be eligible for the labels.
The four new investment labels are:
- Sustainability Focus - At least 70 per cent of a product's assets must invest in assets that are environmentally or socially sustainable.
- Sustainability Improvers - This is for products investing in assets that may not be sustainable now but have an aim to improve their sustainability over time.
- Sustainability Impact - This is a label for products investing in solutions to problems affecting people or the planet to “achieve pre-defined positive measurable impact”.
- Sustainability Mixed Goals - This applies to a mix of sustainability of objectives and approaches present.
A minimum 70 per cent threshold applies to each of the four labels, meaning not all of the investments need to meet the criteria.
