The Financial Conduct Authority (FCA) has introduced an additional green label under its Sustainability Disclosure Requirements and investment labels regime, as the UK regulator confirmed further details of its plans to tackle greenwashing from asset managers in a fresh policy statement today (28 November).
The new label – titled ‘Sustainability Mixed Goals’ – expands the total scope of the regime by bringing the total number of labels to four. The new label aims address issues arising in the consultation process about multi-asset and blended investment strategies, which it said did not fit into the previous three categories, it said.
Following feedback, the FCA has also removed the word “sustainable” from the labels and replaced it with “sustainability”, to reflect how some assets are “on a journey to becoming sustainable”, it said. The updated labels are now set to be called: Sustainability Impact; Sustainability Focus; Sustainability Improvers; and Sustainability Mixed Goals.
The regulator also confirmed plans to introduce a threshold across all labels, requiring firms to have at least 70 per cent of the gross value of a fund’s assets invested in line with its stated sustainability objective.
New anti-greenwashing, naming and marketing rules are also set to be introduced under the new Sustainability Disclosure Requirements (SDR) regime, with a two-month consultation on the greenwashing rules having been launched today. It comes ahead of plans to bring these rules into force at the end of May next year, requiring asset management firms to make fair, clear and non-misleading claims on the sustainability profile of their products and services, the FCA said.
While the SDR regime currently only applies to UK asset managers, the FCA said it plans to consult on proposals for expanding their reach to also apply to wider portfolio management, including managed portfolios and discretionary wealth management services, in early 2024.
Other SDR plans unveiled today include establishing an independent working group for the financial advice industry to work together to build on existing capabilities in sustainable finance, including looking at how the SDR and labels support their role. The regulator said it would also continue to explore how to clarify its expectations for advisers around taking sustainability matters into account in investment advice and suitability.
The FCA’s package of measures is aimed at minimising greenwashing and improving trust among consumers in sustainable financial products. It estimated there are $18.4trn of ESG-orientated (environmental social and governance) assets being managed globally, but has warned that consumers lack confidence that sustainability-related claims made about investments are genuine.
“We are putting in place a simple, easy to understand regime so investors can judge whether funds meet their investment needs – this is a crucial step for consumer protection as sustainable investment grows in popularity,” explained Sacha Sadan, director of ESG at the FCA.
“By improving trust in the sustainable investment market, the UK will be able to maintain its position at the forefront of sustainable finance, and capture the benefits of being a leading international centre of investment.”
James Alexander, chief executive of the UK Sustainable Investment Federation (UKSIF), ailed the changes outlined by the FCA as “an important moment in our industry’s efforts to build greater confidence and trust among retail investors in the UK’s evolving sustainable investing market”.
“We believe that the new investment labels can address concerns often raised by savers over their funds’ sustainability claims and profile,” he said.
“We are pleased to see a number of important revisions to the regime to address potential implementation challenges and promote greater transparency for savers,” Alexander added. “These include refining some of the underlying criteria for the labels and the operation of the marketing rules, as well as direct recognition of the important role of multi-asset funds and blended strategies under the regime.”
However, he called for the FCA to consider additionally establishing a new taskforce or industry group on an ongoing basis to “help the regime’s implementation in the market and monitor greenwashing risks”.
“Crucially, the regulator should continue to closely engage with regulatory authorities in overseas markets to positively shape jurisdictions’ approaches to disclosures and fund labels and promote international harmonisation,” he explained.
Meanwhile Iona Silverman, intellectual property and media partner at law firm Freeths, said the FCA proposals outlined today were “overdue” but “remain scant on detail”.
“Both financial advisors and consumers alike need transparency to enable informed decision making when investing,” she said. “The Competitions and Markets Authority (CMA) and Advertising Standards Authority (ASA) are much further advanced in their regulation of greenwashing in consumer-facing advertising, with the CMA’s Green Claims Code and the ASA’s frequent rulings on what constitutes misleading ‘green’ advertising.
“The FCA needs to up its game and do much more to reassure investors that they are making the right choices.”
A version of this article originally appeared at Investment Week.