FCA proposes new rules to clamp down on Green washing

A recent consultation paper issued by the Financial Conduct Authority (FCA) outlined how investment firms in the UK may be intentionally or unintentionally ‘greenwashing’ some of their sustainability-related products, which is having the knock-on effect of impacting consumer confidence around ESG (Environment, Social and Governance) investment products.

The FCA is hoping to strengthen trust in ESG related products and the financial sector in general by reducing exaggerated, misleading and unsubstantiated claims about ESG credentials and sustainability. This includes restrictions on how terms like ‘ESG’, ‘green’ or ‘sustainable’ can be used.

What is ‘greenwashing’? 

“Greenwashing misleads consumers and erodes trust in all ESG products.” – FCA. 

Greenwashing, also known as ‘green sheen’, is a term that has been growing in popularity as environmental and global-warming related concerns continue to increase in public consciousness and is often used in reference to companies and institutions. It is a play on the term ‘whitewashing’, which is when someone deliberately attempts to conceal unpleasant facts about something. 

As we have seen a rise in popularity and demand for ESG products, some companies have looked to capitalise on the increased desire to invest for ‘good’ but by not actually being as green as they say they are. 

In a nutshell, ‘greenwashing’ is a deceptive form of advertising or marketing that is used to persuade the public that an organisation’s products, ethos or policies are environmentally friendly in order to make them seem more appealing. Using the term is a popular way of ‘calling out’ an organisation for being hypocritical when it comes to their promises compared to their actions on environmental issues. 

Even if the products themselves are in fact environmentally friendly, greenwashing can still be said to occur if the company’s environmentally friendly policies are overshadowed by other environmentally damaging activities they are involved in or connected to.  

For example, if a company is advertising itself as environmentally conscious because it donates a portion of its proceeds to an environmental charity but is also known to have been regularly dumping waste into the oceans to cut costs, then that company would still be considered to be greenwashing.  

The ESG Strategy 

Leading up to the United Nations Climate Change Conference (COP), a strong emphasis has been put on the importance of the finance industry in supporting the transition to the end goal of a net zero economy.

Amidst the growing environmental awareness in the public consciousness, consumers, regulators, industry participants and the media are all increasingly scrutinising the validity of some of the ‘green’ claims made by companies and financial firms.

If the financial sector does not respond to the growing concerns without a supportive regulatory foundation, then they will not be meeting the rising standards that consumers are demanding.

The FCA wants to ensure that consumers and firms can trust that products are as sustainable as they claim to be. If the financial sector is committing to helping support the transition to a more sustainable future, market participants and financial services firms need clear universal standards when it comes to the quality of information around ESG-related products.

It is vital that consumers can rely on firms to take ESG seriously, deliver on their ESG promises and avoid greenwashing. At The Private Office we can not only offer you unbiased advice when it comes to sustainable investing, but we lead by example by gifting a quarter of our future company value to environmental charity, Restore Our Planet. Read more about our ESG credentials here.

If you want to find out more about you can invest your money ethically and responsibly, why not give us a call on 0333 323 9065 or book a free non-committal initial consultation with one of our chartered advisers.

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Note: This article discusses investments, the value of such investments can fall as well as rise. You may not get back what you originally invested. This article is for general information only and does not constitute individual advice.