New proposals to clamp down on greenwashing have today been set out by the FCA.

The regulator has proposed a package of measures that includes introducing investment product sustainability labels as well as restrictions on the use of terms such as ‘ESG’, ‘green’ and ‘sustainable’.

According to the FCA, the measures are among several potential new rules which will “protect consumers and improve trust" in sustainable investment products. The work forms part of a commitment made in the regulator’s ‘ESG Strategy and Business Plan’ to build trust in ESG-labelled instruments and products.

The FCA stated that the financial services sector has recorded growth in the number of investment products marketed as ‘green’ or making wider sustainability claims, but warned that exaggerated or misleading claims about ESG credentials can “damage confidence” in these products.

“Greenwashing misleads consumers and erodes trust in all ESG products,” said director of ESG at the FCA, Sacha Sadan. “Consumers must be confident when products claim to be sustainable that they actually are. 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. We are raising the bar by setting robust regulatory standards to protect consumers in line with our wider FCA strategy.”

The proposals have been welcomed by experts from the financial services sector, with head of investment analysis and research at Hargreaves Lansdown, Emma Wall, suggesting the FCA’s efforts can “bring clarity” to the growing number of responsible investment funds.

“We know that confusing terminology can stop potential investors from selecting the right funds for them - for their personal wealth goals and ethical priorities,” Wall commented.

“Flows into responsible investment funds have held up well against a challenging market backdrop this year, but with this popularity comes the risk of greenwashing.

“Greater clarity and terminology homogeny within the sector, alongside a crackdown on greenwashing, will help drive better outcomes for investors as well as the planet and society. It is important to get these labels right as we’ll be working with them for years to come and so we look forward to exploring the proposals in more detail considering how they will assist clients in making sustainable choices.”

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