FCA sets “higher bar” for greenwashing 

January 31, 2023

The UK regulator’s proposals to suppress greenwashing set a “higher bar” than the EU’s rules, according to the UK Sustainable Investment and Finance Association (UKSIF). 

Representing firms overseeing £19trn of assets, the group stated they were “strongly supportive” of the Financial Conduct Authority’s (FCA’s) proposed sustainability disclosure rules.  

In October, the FCA proposed a package of measures aimed at eradicating greenwashing and promoting the UK as the world leader for sustainable investing. 

The proposals included Sustainability Disclosure Requirements (SDR) and investment labels. 

The measures are designed to build transparency and help consumers navigate the market for sustainable investment products.  

SDR aims to become the UK equivalent of the EU Sustainable Finance Disclosure Regulation (SFDR), which came into effect on 10 March 2021. 

SFDR imposes mandatory ESG disclosures requirements to improve the transparency of sustainable funds and prevent greenwashing.   

The rules require asset managers and investment advisers to disclosure how they address sustainability risks and principal adverse impacts.  

In response to the regulator’s consultation, UKSIF commended the proposed rules for creating a “higher bar” for funds seeking to make sustainability claims. 

According to the group, this will help eliminate greenwashing risks for clients and consumers. 

UKSIF also praised the rules for effectively reflecting firms’ different approaches to sustainable investing, which will provide greater flexibility for firms seeking to meet the higher bar. 

The group said: “This is in comparison to the relatively homogeneous definition for sustainability carved out in SFDR.” 

Even though UKSIF is in support of the FCA’s proposals, the group acknowledged the current limitations of the rules.  

The group expressed concerns smaller firms may be less able to meet the qualifying criteria for sustainable labels. 

The ‘Sustainable Improvers’ labelling category also requires further refinement of the qualifying criteria to provide clarity for industry and consumers, according to UKSIF. 

However, the group remains confident the FCA will consider these recommendations and impose an effective set of rules. 

Uksif said: “We remain optimistic that the SDR and labelling framework will enable clients and consumers to more easily navigate the UK’s sustainable investing market, and in the process support the transition to a more sustainable future.” 

The FCA intends to publish its final rules and guidance by the end of the first half of 2023.