"Our good and poor practice anti-greenwashing examples will help firms market their products in the right way."
- Sacha Sadan, director of environmental, social and governance at the FCA
Ahead of anti-greenwashing rules coming into force on 31st May, the FCA has introduced new guidance to help the industry meet the new standard.
The new rule is designed to protect consumers by ensuring sustainable products and services they are sold are accurately described. The rules clamp down on greenwashing, targeting investment product sustainability labels and introducing restrictions on how terms like ‘ESG’, ‘green’ or ‘sustainable’ can be used.
Results from the latest Financial Lives survey shows significant consumer interest in sustainable finance as 81% of adults surveyed would like their investments to do some good as well as provide a financial return.
The FCA is also consulting on extending to portfolio managers the requirements on how sustainable investments are labelled and explained, whether offered as standardised products or tailored services.
The proposed labelling and Sustainability Disclosure Requirements (SDR) for portfolio managers largely mirror those introduced for asset managers in November 2023. They include product labels to help consumers understand what their money is being used for, and naming and marketing requirements so products can only be described as having positive outcomes on the environment and/or society when those claims can be backed up.
Sacha Sadan, director of environmental, social and governance at the FCA, said: "Confirming the new anti-greenwashing guidance and our proposals to extend the Sustainability Disclosure Requirements and investment labels regime are important milestones that maintain the UK’s place at the forefront of sustainable investment. Our good and poor practice anti-greenwashing examples will help firms market their products in the right way. We continue to work closely with the ASA and CMA to address greenwashing.
"Consumers care about investing in products that have a positive impact on the planet and people. That’s why we want to boost the integrity of the market and ensure people can make informed decisions with their money."
Gemma Woodward, head of responsible investment at Quilter Cheviot, commented: “The FCA extending its Sustainability Disclosure Requirements to portfolio management is the logical next step in the process. Having consistency across the investment landscape is going to be critical if the SDR labels are to be a success and that customers are not misled on the sustainable credentials of their portfolios. Portfolio management services, be that model portfolios or bespoke offerings, have become increasingly popular in the last decade. While the burden will now increase on those providers, it is important consumers and advisers can accurately compare services and that there is a level playing field for sustainable offerings – this will be particularly interesting for bespoke offerings which should reflect the customer’s requirements.
“This is a far-reaching piece of regulation from the FCA and as such it requires careful navigation. As the industry evolves, additional clarification on what can and cannot be said, particularly around the naming and marketing of funds and portfolios, will be crucial. This works both ways in that we want to avoid ‘green hushing’ as much as preventing greenwashing. This is where an investment underplays its sustainable credentials so as not to inadvertently overstep the mark. It is a phenomenon already seen in the US and it is vital that we do not see if creep into the UK.
“For advisers, this also underscores the importance to be up to speed and trained in this area of investments. Clients will increasingly be asking about or for sustainable related investments, and as such the advice industry needs to have the confidence and skills to have those conversations. The FCA is working with advisers to help open these communication channels, but more needs to be done by everyone given the rules will come into force imminently. Given the rise in the use of model portfolios, this gives advisers another good opportunity to review their practices around sustainable investment.
“The FCA has also finalised its anti-greenwashing rule today, putting in place clear guidelines for how asset and wealth managers should communicate the environmental, social and governance credentials of their portfolios. This is a clear extension of the things like the Consumer Duty, where the FCA is putting a high bar on customer understanding. It is likely the FCA will police this effectively in the early days to ensure compliance is high and as such providers will need to review and update their marketing if they have not already done so.”
