Trial and error

31 December 2019 By George Hay Follow @gfhay

Around $31 trln of assets under management now include some kind of environmental, social or governance factor. But there’s widespread confusion over definitions. That leaves the market open to egregious mis-selling and fraud. A scandal is likely sooner rather than later.

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The Financial Conduct Authority said on Oct. 16 it would challenge firms if it spots potential so-called greenwashing, by clarifying expectations and taking appropriate action to prevent consumers being misled.

The FCA said it would also carry out further policy analysis on greenwashing and take action, for example via guidance, to address concerns as appropriate. It also said it would engage and consider the proposals of the European Commission’s Sustainable Finance Action Plan relevant to products and services, particularly around common standards and product disclosures.

The FCA said it was not always clear what firms or consumers mean by, or expect from, green products. It also said that early indications from its research were that the “sustainable” label was applied to a very wide range of products, which on the face of it do not appear to have materially different exposures to products that do not have such a label.

The regulator said it defined greenwashing as marketing that portrays an organisation’s products, activities or policies as producing positive environmental outcomes when this is not the case.

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