UK asset managers face crackdown on use of ESG label

LONDON: The United Kingdom’s financial watchdog has unveiled a new framework designed to protect retail investors from misleading environmental, social and governance (ESG) claims.

The measures include an explicit anti-greenwashing rule, product labels to help investors understand a fund’s specific goals, and marketing requirements aimed at ensuring that products don’t promote a sustainability objective that doesn’t exist.

“We have been concerned that some firms may be making misleading or exaggerated sustainability-related claims about their investment products,” said Sacha Sadan, director of the Financial Conduct Authority’s (FCA) ESG unit.

Britain’s framework targeting ESG funds comes as the European Union (EU) faces a wall of criticism over its regime, which more than two years after its launch is being wheeled back to the drawing board for an overhaul.

The EU’s Sustainable Finance Disclosure Regulation (SFDR) has been lambasted by investors and national regulators alike for its alleged failure to provide a user-friendly rulebook.

The EU, which has so far avoided a basic labelling system and insisted instead on a disclosure regime, is inviting market feedback through a consultation process that runs until mid-December.

Mairead McGuinness, the EU’s commissioner for financial markets and services, has said the goal of the review is nothing less than to find out whether SFDR is “fit for purpose”.

The FCA said it wants to ensure that its ESG fund rules, which fit into its sustainability disclosure requirements, are compatible with regimes in other jurisdictions.

“We’re putting in place a simple, easy to understand regime so investors can judge whether funds meet their investment needs,” Sadan said. — Bloomberg