Investment managers have welcomed the Financial Conduct Authority’s recent guidance on its anti-greenwashing rule which comes into force on 31 May 2024, but warned that new regulation can also pose “challenges” for firms and the investment industry.
The rule requires all FCA-authorised firms to be able to substantiate any sustainability-related claims when communicating with clients about products and services and ensure these claims are “fair, clear and not misleading.”
It is part of the new Sustainability Disclosure Requirements and investment labels regime, published in November last year.
Rob Guest, co-lead fund manager of Foresight Sustainable Forestry Company, said: “We are in favour of SDR’s anti-greenwashing rule and see this as an encouraging signal that investors are becoming more sophisticated in their understanding of this area and are seeking assurances of accuracy.
“As the rule becomes more established over time, it will have the positive effect of increasing stakeholder confidence in sustainability claims and hopefully encourage more corporates to adopt robust sustainability frameworks as part of their standard reporting procedures.”
Ed Mountney, co-lead investment manager for JLEN Environmental Assets Group, echoed the sentiment.
“The introduction of a robust framework establishing parameters for a reliable sustainability reporting regime is a positive development for the industry overall as well as for investors who will be able to assess different sustainable investment vehicles. The ability of investors to make informed decisions is vital for confidence in the sector to continue expanding, so the anti-greenwashing rule will provide an important safeguard against companies claiming sustainability credentials without clear and demonstrable evidence,” he said.
However, Eleanor Fraser-Smith, head of sustainability at Victory Hill Capital Partners, said that many of the disclosure regulations published in recent years have been “complex and technical” and said new regulation will need to be careful to focus on clear communication to be effective.
“Many of these disclosures are not very accessible and, if they are read, have done little to build trust in the sector. ESG terms, comms teams, PR teams, IR teams often don’t align on ESG communications,” said Fraser-Smith. “Additionally, in a world of miscommunication and social media, firms cannot control the narrative and transparency commitments can backfire. That’s why regulations that focus on fair, clear and not misleading communications are vital.”
Guest noted that any new regulation can bring challenges in terms of ensuring it is implemented in a way which is effective but also understands how it interacts with existing sustainability credentials.
“There is cost and time involved in this process as both internal and external resource is usually required to adopt new labelling, produce the necessary communication materials to keep stakeholders informed and ensure that audiences are educated enough to understand the new labelling in the first place.”
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