UK FCA puts out sustainability disclosure requirements to clamp down on greenwashing

The UK’s Financial Conduct Authority has decided to improve trust in the sustainable investment market, and to do it, it made a move to clamp down on greenwashing.

The UK regulator put sustainability disclosure requirements in place, as well as an investment labels regime.

The FCA to put sustainability disclosure requirements into place as of next year

The country’s financial watchdog initially revealed plans for a package of new measures meant to improve transparency and trust of sustainable investment products which were meant to minimize greenwashing last year, in 2022. In the following twelve months, the FCA collected feedback from industry insiders, and it confirmed that the rules were efficient enough.

The plan is to have them come into effect in full in 2024. Starting at the end of May next year, the anti-greenwashing rule for all companies authorized to operate in the UK will ensure sustainability-related claims must be fair clear, and that there can be no misleading statements, promises, or claims.

Two months after that, in July, the regulator will also introduce product labels, which will help investors understand how their money is being used based on sustainability goals and criteria, which must also be clearly explained.

Finally, in December, the regulator intends to put naming and marketing rules for asset managers into effect. That way, entities would not be allowed to describe a product as something that has a positive impact on sustainability if they actually do not.

Improving the sustainable investment market

The director of ESG at the FCA, Sacha Sadan, commented on the move by saying that the regulator is putting in place a simple, easy-to-understand regime for investors to judge whether the firm they are interested in meets their investment needs. Sadan described this as a crucial step for consumer protection as sustainable investment grows in popularity.

The fact that investors are more interested in investing in sustainable businesses can cause many to try describing themselves as such, even when they do not fall into that category, just so they could attract more buyers for their shares. This could harm companies that legitimately offer sustainable products by reducing trust among investors.

The new rules will prevent that by holding such entities responsible for misleading or false claims. Furthermore, Sadan added that by improving trust in the sustainable investment market, the UK wants to help maintain its position at the forefront of sustainable finance, and capture the benefits of being a leading international center of investment.