FCA delays proposed new sustainability plans

The Financial Conduct Authority (FCA – the city regulator) has proposed to scrap the ESG (Environment, Social and Governance) label and replace it with three different labels that aim to be more descriptive. Whilst the FCA are currently in consultation, and the details will not be finalised until Q3, the three new proposed investment labels, just part of the Sustainability Disclosure Regulations plan, for sustainable products are: ‘sustainable focus’, ‘sustainable improver’ and ‘sustainable impact’ (FCA: March, 2023).

The FCA outlined how a rising trend of ‘greenwashing’ has been beginning to shake consumer confidence around ESG related products, which ultimately could have a negative impact on the environment and future of our planet. 

In doing so, the FCA is hoping to reduce greenwashing and work to eliminate exaggerated, misleading and unsubstantiated claims about ESG credentials, in order to strengthen trust in ESG related products and the financial sector in general. 

Following a consultation, the FCA has now announced plans to delay any implementation of the Sustainability Disclosure Regulations, which included the proposed new sustainable labels, due to the significant volume of feedback from respondents. The FCA received around 240 written responses to the consultation which they state is in broad support of the proposals. They now plan to publish the policy statement Q3 of this year. 

What is ESG Investing? 

ESG investing is where fund managers invest in companies that work towards improving the Environment, addressing Social inequality or Governance improvements. 

The environmental component requires research into a variety of elements that illustrate a company’s impact on the earth. Social consists of people-related elements like company culture. The corporate governance component relates to the board of directors and company oversight. 

What is Greenwashing? 

‘Greenwashing’ is a term used to describe the act of making false or misleading claims about the environmental benefits of a product, service, or company, in order to make the product or company appear more environmentally friendly than they actually are. If you would like to learn more about 'greenwashing', you can read our article here.

Greenwashing is a play on the term ‘whitewashing’, which is when someone deliberately attempts to conceal unpleasant facts about something. Greenwashing is most frequently used to criticise companies and institutions that present themselves in a deceptively environmentally friendly way.  

The term has been growing in popularity recently as environmental-related issues become more widely discussed. It is especially popular among environmental activist groups as a way of ‘calling out’ organisations for intentionally misleading consumers by using vague or meaningless terms like “eco-friendly” or “sustainable” without any specific or verifiable way to back up the claims. 

It should be noted that 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 their environmentally-damaging activities. For example, a company may advertise itself as environmentally friendly because it does something altruistic like planting trees after purchases, but if this same company regularly dumbs waste into the oceans to cut costs, then this company can still be said to be greenwashing. 

The three new proposed ESG labels 

1. ‘Sustainable Focus’ is for products with an objective to maintain a high standard of sustainability, meet a credible standard of social sustainability or align with a specified environmental or social sustainability ‘theme’. Basically, these are products that are sustainable for the planet and consumers.  
2. ‘Sustainable Improver’ is for products with an objective to deliver improvements in the sustainability profile of assets over time. Essentially these products invest in assets that may not necessarily be sustainable now, but have a measurable aim to improve their sustainability in the future.  
3. ‘Sustainable Impact’ is for products with an explicit objective to achieve a positive, measurable contribution to sustainable outcomes. These are invested in assets that produce real solutions to environmental or social problems. As the name suggests, these are intended to have the highest measurable improvement for people and the planet and aim to achieve real-world positive change.

You can view the full report here – Sustainability Disclosure Requirements (FCA: March, 2023).

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 value to environmentally friendly charity ‘Restore Our Planet’ which include such causes as the Trillian Trees Project, responsible for replanting trees in order to restore deforested areas and strengthen endangered habitats. You can look at all of our environmental, social and governance (ESG) commitments.   

If you want to find out more about how you can invest your money sustainably, 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 is intended for general information and should not be taken as individual financial advice. The value of investments can go down as well as up, returns are not guaranteed and you may not get back what you originally invested. The FCA does not regulate estate, wills, tax planning or trust advice.