UK Regulator Tackles Greenwashing Its Own Way

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    Stockholm (NordSIP) –The United Kingdom’s Financial Conduct Authority (FCA) announced a new package of measures to tackle greenwashing on the 25th of October 2022.  Despite having cut its official ties with the European Union (EU), the UK remains the continent’s largest asset management market with AuM of more than €10 trillion and a 36.7% market share, according to the latest figures from the European Fund and Asset Management Association (EFAMA).

    Given the ongoing efforts under the EU’s Sustainable Finance initiative to create a taxonomy for sustainable activities and a common reporting framework via the Sustainable Finance Disclosure Regulation (SFDR), is there a danger of the UK regulators reinventing the wheel and causing more confusion and administrative work for asset managers and investors?  Thankfully, it seems that the FCA is taking a reasonably sensible approach by providing mapping of its proposed fund classification to the SFDR and the U.S. Securities and Exchange Commission (SEC) proposals.  This is included in the regulator’s Sustainability Disclosure Requirements (SDR) and investment labels consultation paper, the responses to which are due from market participants by 25 January 2023.  In a standard letter to all the Chairs of Authorised Fund Managers (AFMs), the FCA acknowledges that “there are links between the guiding principles and other regulatory initiatives, such as the EU’s Sustainable Finance Disclosure Regulation (SFDR).  We acknowledge that, while SFDR has not been onshored in the UK, some UK authorised firms may also be complying in relation to their cross-border business in the EU. The intent of these guiding principles is to be complementary to obligations under SFDR.”  The proposed fund categorisation does seem to echo the Article 6, 8 and 9 structure within the SFDR.

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    The FCA would like to establish a general “anti-greenwashing” rule for all the firms under its supervision and sets out its proposals for the naming of fund products and the language to be used in marketing materials.  Any ESG or sustainability claims will need to be described in detail within the fund documentation, and evidence will need to be shown that the appropriate specialist resources are in place to deliver all aspects of the strategy.  The FCA’s initiative is definitely welcome in a fund market where greenwashing can lead to investor scepticism and stem the flow of capital to sustainable investments.  However, given the UK market’s size and proximity to the European Union, one can only hope that the FCA maintains a sensible level of synchronicity with the output of the Commission’s own sustainable finance strategy.

    Image courtesy of Gordon Johnson from Pixabay (edited)
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