The UK’s Financial Conduct Authority (FCA) has put forward a set of measures seeking to cut down the practice of ‘greenwashing’ in the financial sector.   

The regulator proposed the package following a surge in investment products that are branded ‘green’ in the name of marketing, thus misleading consumers.

As part of the FCA’s ESG Strategy and Business Plan, the proposed measures are intended to develop trust in instruments and products having environmental, social and governance (ESG) credentials.

The new measures cover multiple aspects including investment product sustainability labels, and curbs on using ‘ESG’, ‘green’, ‘sustainable’ among other related terms.

While a public consultation on the recommendations is open till 25 January 2023, the new rules are scheduled to be finalised by mid-2023.

The proposed package is expected to be implemented in June 2024.

FCA Environment Social and Governance director Sacha Sadan said: “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.”

Apart from sustainable investment product labels to help consumers choose the right products, the FCA also proposes a general anti-greenwashing rule for all regulated firms.

Further, the regulator wants the products to feature clear consumer-facing disclosures including sustainability features.

The FCA has also recommended the products to have disclosures with more specifications to guide institutional investors and retail investors.   Additionally, the regulator noted that it will enhance checks on companies’ sustainable products.