One More Step Against Greenwashing
The FCA (Financial Conduct Authority) is the financial market regulator in the UK, aiming to protect consumers, promote market competition and improve the integrity of the financial markets.
The organization has recently confirmed that it is ready to release a set of new measures that will determine how different labels linked to sustainability (such as “green”, “ESG”, etc.) can be used by funds. Even though other global regulators, such as SEC and the EU through the Sustainable Finance Disclosure Regulation (SFDR), have already published such standards that aim to increase the knowledge of investors, the purpose of FCA is to create a more transparent ecosystem where consumers can gain back the trust that was lost in these firms after the discovery of greenwashing activities.
The FCA’s Director of Environment, Social, and Governance, Sacha Sadan, stated: “Greenwashing misleads consumers and erodes trust in all ESG products. Consumers must be confident when products claim to be sustainable that they actually are. Our proposed rules will help consumers and firms build trust in this sector. This supports investment in solutions to some of the world’s biggest ESG challenges. This places the UK at the forefront of sustainable investment internationally. We are raising the bar by setting robust regulatory standards to protect consumers in line with our wider FCA strategy.”
The FCA proposed three different labels that will differentiate the following three different fund categories:
- Funds that hold exclusively sustainable assets.
- Funds that are planning to become more sustainable over time by modifying the composition of their asset portfolio.
- Funds that are focused on impact investing (an investment strategy that pursues both financial gains and environmental/social benefits).
The UK’s regulator wants funds to explain why they are using a certain sustainable label even if they are investing in industries that do not meet certain ESG criteria or in high-carbon emission companies; therefore, the role of the standards that will be published by the FCA is also to encourage managers to clarify the reasoning behind the suitability and hence the inclusion of a certain investment in a sustainable fund.
These measures are expected to be released by the middle of next year; furthermore, the FCA will allow one more year for existing funds to ensure compliance with the new criteria, whereas new funds will need to meet them upon establishment in order to be approved by the regulator.
Now the question is, will this be enough to win against greenwashing? Will these kinds of rules be effective? Maybe not, but it is certainly going to assist the supervisory system and it is undoubtedly a clear signal of the national and global direction.
Sources
Author: Matteo Boscarato
One More Step Against Greenwashing
The FCA (Financial Conduct Authority) is the financial market regulator in the UK, aiming to protect consumers, promote market competition and improve the integrity of the financial markets.
The organization has recently confirmed that it is ready to release a set of new measures that will determine how different labels linked to sustainability (such as “green”, “ESG”, etc.) can be used by funds. Even though other global regulators, such as SEC and the EU through the Sustainable Finance Disclosure Regulation (SFDR), have already published such standards that aim to increase the knowledge of investors, the purpose of FCA is to create a more transparent ecosystem where consumers can gain back the trust that was lost in these firms after the discovery of greenwashing activities.
The FCA’s Director of Environment, Social, and Governance, Sacha Sadan, stated: “Greenwashing misleads consumers and erodes trust in all ESG products. Consumers must be confident when products claim to be sustainable that they actually are. Our proposed rules will help consumers and firms build trust in this sector. This supports investment in solutions to some of the world’s biggest ESG challenges. This places the UK at the forefront of sustainable investment internationally. We are raising the bar by setting robust regulatory standards to protect consumers in line with our wider FCA strategy.”
The FCA proposed three different labels that will differentiate the following three different fund categories:
- Funds that hold exclusively sustainable assets.
- Funds that are planning to become more sustainable over time by modifying the composition of their asset portfolio.
- Funds that are focused on impact investing (an investment strategy that pursues both financial gains and environmental/social benefits).
The UK’s regulator wants funds to explain why they are using a certain sustainable label even if they are investing in industries that do not meet certain ESG criteria or in high-carbon emission companies; therefore, the role of the standards that will be published by the FCA is also to encourage managers to clarify the reasoning behind the suitability and hence inclusion of a certain investment in a sustainable fund.
These measures are expected to be released by the middle of next year; furthermore, the FCA will allow one more year for existing funds to ensure compliance with the new criteria, whereas new funds will need to meet them upon establishment in order to be approved by the regulator.
Now the question is, will this be enough to win against greenwashing? Will these kinds of rules be effective? Maybe not, but it is certainly going to assist the supervisory system and it is undoubtedly a clear signal of the national and global direction.
Sources
Author: Matteo Boscarato
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