The Financial Conduct Authority (FCA) has launched a consultation on new proposals designed to crack down on greenwashing, with plans for a further consultation to extend these proposals to pension products expected “in due course”.
As part of the consultation, the regulator FCA has announced plans for new sustainable investment product labels, underpinned by objective criteria, with three categories proposed, including one for products improving their sustainability over time.
It also proposed restrictions on how certain sustainability-related terms, such as environmental, social or governance (ESG), ‘green’ or ‘sustainable’, can be used in product names and marketing for products that don’t qualify for sustainable investment labels.
This is alongside a more general anti-greenwashing rule covering all regulated firms, which the FCA suggested would help avoid misleading marketing of products.
The regulator also included plans for consumer-facing disclosures to help consumers understand the key sustainability-related features of an investment product, as well as more detailed disclosures, suitable for institutional investors or retail investors.
The FCA confirmed that it will review the feedback to the consultation, with the intent to outline its final rules in a policy statement by the end of the first half of 2023.
In addition to this, the regulator announced that it intends to build on these proposals in future, with further consultations looking to expand the scope of the regime to overseas and pension products, to be undertaken in “due course”.
“We consider the proposals set out at this stage to be a starting point aimed at addressing immediate harms and helping firms to build their capabilities around sustainability-related disclosures, primarily in the interests of retail investors,” it stated.
The FCA is therefore looking to hear stakeholders’ views on extending the requirements to pension and other investment products, explaining that it wants to ensure retail investors have greater transparency over both their direct investments and their savings, including pensions.
However, the FCA clarified that its early view on labelling is that it would be most decision-useful to apply a sustainable investment label to pension products at the level at which the consumer invests, rather than at the pension scheme level.
The FCA also acknowledged that its approach to labelling will affect how pension providers are able to name and market their products, asking for views as to whether the proposed naming and marketing rules in the current consultation would be sufficient to ensure that pension providers communicate these features in a “proportionate manner”.
More broadly, the FCA acknowledged that certain approaches currently being consulted on would not be suitable for pension products, noting for instance, that default arrangements change over time to reflect the change in consumers’ retirement journey and risk appetite.
FCA director of environment social and governance, Sacha Sadan, stated: “Greenwashing misleads consumers and erodes trust in all ESG products.
“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.”
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