FCA ponders extension of anti-greenwash rules to cover investment portfolio managers
The UK’s Financial Conduct Authority (FCA) is consulting on plans to extend anti-greenwash guidance and standards for asset managers to also cover investment portfolio managers.
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The FCA confirmed plans late last year to introduce new anti-greenwashing funds to prevent asset managers from misleading investors on the environmental and social impacts of their funds.
Asset managers will be subjected to the new Sustainability Disclosure Requirements (SDR) rules. This means they will not be able to make vague references to ‘sustainability’, ‘ESG’ or related terms when marketing their funds. They must provide “clear, complete” information and choose one of four specific fund labels. They must also prove that at least 70% of the fund is allocated to support its label.
The anti-greenwashing rules will come into force on 31 May. The FCA has issued new guidance to help the industry meet the new standards. Guidance includes good and poor practice examples of greenwashing to help firms implement the rule. The FCA is also consulting on extending SDR to portfolio managers.
The proposed labelling and SDR for portfolio managers include ensuring that product labels are accurate to help consumers understand what their money is being used for, and introducing marketing requirements to ensure that environmental claims are backed up.
The FCA’s director of environmental, social and governance, Sacha Sadan 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.”
Screening of more than 40,000 funds from across the world with ‘ESG’ in their title found that 18% were found to have a negative impact relative to their market benchmark.
Similarly, a recent Research in Finance survey of 227 discretionary fund managers and investment advisors found that six in ten are holding back from investing in ESG funds for fears over exaggerated and misleading claims and labels.
Additionally, RepRisk found that one in every five cases of corporate risk incidents linked to ESG issues stemmed from greenwashing and misleading communications.
Having undertaken substantial due diligence on finding a pension provider that accurately and transparently reports their portfolio ESG status, I welcome this news and I look forward to the FCA producing tighter guidance.
However, guidance alone will not prevent financial institutions from greenwashing and It must be backed up with truly independent auditing and significant penalties imposed on offenders.