The City regulator is considering whether to introduce a set of guiding principles to help firms with environmental, social and governance (ESG) product design and disclosure.
Richard Monks, director of strategy at the Financial Conduct Authority (FCA) said the regulator wants to help firms deliver the reliably sustainable investment products that consumers and investors want while helping consumers make better informed choices.
Speaking at the SRI Services and Partners event, Monks said that the principles would ensure messaging about ESG products is clear, consistent, fair and not misleading.
He said this should ensure firms do not exaggerate their products’ green credentials, known as greenwashing.
Monk’s said the principles would dictate a product’s ESG focus should be clearly and fairly reflected in its objectives, such as to target certain sustainability characteristics, and these should be set out in a clear and measurable way.
He said the set of principles would tell firms that a product’s documented investment strategy should set out clearly how its sustainability objectives will be met, including any constraints on meeting these.
Monks added the FCA would tell firms to report its performance against its sustainability objectives on an ongoing basis.
“Looking ahead, sustainable investing is surely here to stay,” Monks said in the speech.
“This is a fast-moving, evolving and innovative space. But innovation can’t come at the expense of undermining trust in the sustainable finance market. Trust is hard won but easily lost.
“We all have an interest in building and maintaining trust in this market. We will act where we find firms are not upholding the standards we expect. And we want you to tell us where you have concerns, so that we can act.
“By working together in the interest of consumers, we can make sure this market continues to thrive.”
Monks said the FCA is currently developing online consumer behaviour experiments to test consumers’ understanding and expectations of key ESG terms.
He said later this year the regulator hopes to test how the presentation and content of product information might influence consumers’ decisions with a view to publishing the results next year.
Monks said the results will help inform whether additional guidance or rules are needed.