MPs push for ‘redress’ for investors duped by greenwashing
As it tightens up rules on which kinds of investment can and cannot be marketed as sustainable, the UK’s Financial Conduct Authority (FCA) is being asked to help investors who have previously been misled by greenwashing.
MPs on the Treasury Committee have this week written to the FCA, pressing for more information on the costs that consumers will likely have to bear as it increases regulations around environmental claims.
The Committee has previously been told that investors may need to pay to move their investments from funds that could once be described as ‘green’ or ‘sustainable’, but could no longer use the claims, to funds with more credible performance on environmental, social and governance (ESG) issues.
FCA assumptions at present are that around one-thirds of funds currently using these claims will no longer qualify to use them once it completes its interventions. These include funds describing themselves as ‘sustainable’ but investing in oil and gas firms without credible climate plans, or in corporates linked to issues such as deforestation. One 2021 analysis found that 71% of equity funds with climate themes are supporting activities inconsistent with the Paris Agreement.
The new letter calls for a thorough cost-benefit analysis, including projections of how many investors are likely to pay the charge for moving their money and whether charges could be reduced in this instance. Charges could be partly footed, for example, by funds that have previously misled customers.
Should customers effectively be penalized for choosing ESG investments in the UK, the letter states, they may opt for non-ESG-related options or for investments overseas.
“Consumers who invested in funds believing they were doing their bit to save the planet must not be made to bear the cost of moving if they find out their fund isn’t so green after all,” said Harriet Baldwin, the Conservative MP for West Worcestershire who chairs the Treasury Committee.
“Without a comprehensive cost-benefit analysis, the regulator’s proposals are lop-sided. Further work on what the costs are going to be, who will pay, and how the regulator will enforce the rules is clearly necessary.”
The Treasury Committee has asked the FCA to respond to its letter by 23 March.
As well as regulating claims from funds themselves, the FCA may move in the future to tighten up regulations on ESG data and ratings providers, to help ensure they are accounting for the full impacts of the businesses they assess. Given that each data and ratings provider uses different definitions of ESG and different methodologies to assess performance, there is room for confusion.
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