How is the FCA cracking down on greenwashing?

This article was last updated on 05/12/2024

As sustainable and ethical investing continues to grow, so does the threat of greenwashing. On 31 May 2024, the Financial Conduct Authority (FCA) stepped in, introducing their anti-greenwashing measures.

Keep reading to find out how the FCA is tackling greenwashing.

What is greenwashing?

Greenwashing is where companies present themselves as environmentally responsible or sustainable through misleading or false claims. Greenwashing threatens consumer trust and undermines the integrity of the sustainable investing market. Regulation from the FCA is crucial for several reasons:

• to protect consumers;
• to maintain market integrity; and
• to make an environmental impact.

The FCA’s measures to tackle greenwashing

On 31 May 2024, the FCA introduced their long-awaited guidelines and reporting standards. This signalled a clear commitment to protect consumers and promote transparency. The finalised guidance states that sustainability references should be:

• Correct and capable of substantiation - factually accurate and supported by robust, relevant and credible evidence that is regularly reviewed.
• Clear - transparent and straightforward, with the meaning of all terms generally understood by the intended audience.
• Comparable - fair and meaningful whether in relation to a previous version of the same product or service or to a competitor’s product or service.
• Complete - considering the full lifecycle of the product or service and not omitting or hiding important information that might influence decision-making. This extends to not highlighting only positive sustainability impacts where this disguises negative impacts.

These changes are vital in creating a more environmentally responsible economy. Companies and consumers both stand to benefit from a more trustworthy and transparent marketplace.

What are the new SDR labels?

The FCA’s new sustainability labels aren’t for all financial products. For example, they won’t be used on pensions for now. However, you might start seeing these on certain investment funds from 31 July 2024. Here’s a breakdown of what they are and what they include.

Label: Sustainability focus

For: Products that are environmentally or socially sustainable, determined by a robust, evidence-based standard of sustainability.

Label: Sustainability improvers

For: Products that have the potential to become more sustainable over time, determined by their potential to meet a robust, evidence-based standard of sustainability over time.

Label: Sustainability impact

For: Products that seek to achieve a predefined, positive, measurable environmental and/or social impact.

Label: Sustainability mixed goal

For: Products that meet or have the potential to meet a robust, evidence-based standard for sustainability, and/ or invest with an aim to achieve positive impact.

The impact of the FCA’s actions

Concerns over climate change have fuelled demand for impact investing among pension savers. Our research found that some future retirees could be at risk of homelessness due to climate change. Retirees may need an extra £25,000 in retirement savings to pay for climate-related food costs.

Where to learn more about socially responsible investing (SRI)

You can visit our Plans page to learn how you can invest in line with your values and discover our available SRI plans including our Shariah-compliant plan and our Climate Plan.

Discover more about SRI and impact investing with PensionBee via our helpful blogs, videos and podcast.

We’d love to hear from you. You can always send comments and questions to our team via engagement@pensionbee.com.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.