FCA Confirms New Sustainability Disclosure, Labeling Requirements

The United Kingdom’s Financial Conduct Authority (FCA) has established new requirements for sustainability disclosures and is enforcing consumer-focused investment labeling requirements, aiming to help support informed investing decisions and prevent greenwashing or false sustainability claims.

The new requirements include an anti-greenwashing rule, product label regulations, and marketing standards. The anti-greenwashing rule will work to ensure firms are making clear, fair claims about their sustainability efforts. Labeling and marketing requirements will help investors and consumers understand where their money goes according to a given company’s sustainability criteria, also ensuring products cannot be described as making a positive environmental impact unless they realistically do so.

“We’re putting in place a simple, easy-to-understand regime so investors can judge whether funds meet their investment needs — this is a crucial step for consumer protection as sustainable investment grows in popularity,” said Sacha Sadan, director of environmental, social, and governance at FCA. “By improving trust in the sustainable investment market, the U.K. will be able to maintain its position at the forefront of sustainable finance, and capture the benefits of being a leading international center of investment.”

The FCA reportedly consulted with a range of stakeholders in creating the new regulations, including industry, other regulatory institutions, and consumer groups. A driver for creating the new regulations, according to the organization, stems from research that investors are not confident that sustainability claims made by firms are totally genuine.

Increased Regulation Follows Consumer Demand for Sustainability

The new rules may also improve corporate transparency towards consumers increasingly concerned with the environment–the FCA claims that a majority of U.K. adults want to make purchases that protect the environment and have a positive social impact.

This trend is becoming more widespread as people become more invested in corporations’ environmental impact. Consumer-led lawsuits have arisen in the United States towards companies making unfounded claims about being “net zero” or “green,” while a survey of Latin American residents revealed a desire to prioritize governmental focus on the environment over economic gains. Ecolab research has also found increased student demand for low-impact meals at universities throughout the U.S. and found access to clean and safe water is a top concern for consumers in every region of the world.

In response, regulatory bodies have begun establishing stricter rules surrounding how companies define sustainability in their marketing, reporting, and other consumer- and investor-facing avenues. Along with the new FCA regulations, the SEC recently enhanced its naming rules to avoid greenwashing by ensuring portfolio managers define how their fund’s title accurately reflects at least 80% of its assets.