The Treasury and the Financial Conduct Authority (FCA) are working on requirements for businesses and investment firms to disclose sustainability information.
The move forms part of the government’s work on using green finance to help move the economy towards its target of net-zero carbon emissions by 2050.
It is unclear if this would impact peer-to-peer lenders but the Treasury said in a report published today (1 July) that consumers should be able to “quickly and easily” see the environmental impact of their investments.
The document said the government will work with the FCA to introduce a sustainable investment label.
It said this will cover retail investments using information provided through separate regulatory work providing standardised sustainability labels.
Businesses will also be required to disclose the climate and environmental risks and opportunities that they are facing.
“This economy-wide regime will cover real-economy corporates, financial services firms, and pension schemes,” the report said.
David Bradley-Ward, founder of Ablrate, said sustainability labels were a good idea in principle.
“As with everything the devil is in the detail,” he added.
“For example, how do you compare product against product? Inevitably to do that properly it will lead to a third party assessment of a transaction, which will create an extra cost, and possibly timing issues.
“Also, how far do you go? In any investment there is an impact that two sides can see differently. Take wind power, it’s a no-brainer on the face of it, but what about people who don’t want them in their neighbourhood due to noise concerns, or environmental aesthetics, is the impact on them not taken into account?”
He said he supports sustainability in investment but warned it shouldn’t mean higher costs, lower returns or restricted access for investors.
Even if P2P lenders aren’t included, there are hopes that creating sustainable labels will stop the practice of “greenwashing.”
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This is where financial products claim to be climate-friendly but are not as green as they claim.
“It is unclear how it will affect investments in specific projects or businesses, but it will certainly help the problem of greenwashing when investments are made via diversified funds,” Bruce Davis, managing director of P2P crowd bonds platform Abundance, said.
The release of a sovereign green bond in September and new green savings products from National Savings and Investments also forms part of the Treasury’s work.
Davis said he had asked the government to consider additional channels for investors to participate in Treasury green bond issuance such as through P2P lending.
“While the initial focus is on using the existing NS&I platform, we hope that in the future the Treasury will consider ways that regulated investment crowdfunding can play a role in democratising investment in green gilts,” he said.
The Treasury and the FCA have been asked for comment.