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The ESG Review: The FCA seeks to police how companies use the word often misused and abused word "green"

Across the decades of intentions and actions to make businesses more sustainable, no word has been more used, misused and potentially abused than green.

In itself, that’s understandable. Green is a colour associated, of course, with the natural environment and its preservation, given that so many of nature’s positive forces are green. When applied to capital markets or consumer pockets, what does it really mean?

But similar to regulatory moves to define and therefore police the way that companies portray sustainable credentials through advertising, the UK’s Financial Conduct Authority (FCA) has now set its sights on the very word “green” for investment purposes.

The clampdown is intended to bring order to fund managers’ use of the word, and the term ESG, in ‘classifying’ funds as sustainable investments, and will include a new set of labels to standardise that.

As the Financial Times put it, “The FCA has warned of the risk of ‘exaggerated, misleading or unsubstantiated claims’ luring investors into products whose green marketing is not backed up by genuine sustainable credentials.”

Or put it another way, bullshitting.

The FCA’s announcement is the latest in a series of moves around the world by regulators seeking to cap and control greenwashing, including the UK’s Advertising Standards Authority’s guidelines for brand and corporate marketing. Pressure is growing for both investment and regulation and marketing definition, but the FCA is the first body to go for the jugular of the word green.

It comes as the UK’s green economy is again firmly in the spotlight with the (latest) change of Prime Minister, and media articles speculating that Rishi Sunak’s appointment will signal a return to support for building a more sustainable economy long-term, at least compared to the apparent u-turn - one of them - of the previous administration. As he reiterated the Government’s 2019 election manifesto this week, the PM also appointed Grant Schapps to lead on business and the net-zero agenda, and Therese Coffey on environment.

In The Times’ coverage of the FCA story, the regulation of fund labelling was seen by one commenter as “a useful shorthand to help savers navigate the growing number of sustainable and responsible investment products and to compare the sustainability credentials of their investments.”

Those labels and their definitions will be crucial in determining how successful this attempt to prevent the purpose of green from being deliberately discoloured will be.

“This places the UK at the forefront of sustainable investment internationally. We are raising the bar by setting robust regulatory standards to protect consumers in line with our wider FCA strategy,” said FCA ESG Director Sacha Sadan in making the announcement.

And according to Finextra, the FCA plans to complement the introduction of three categories of certified 'sustainability' labels for investment products, with more general anti-greenwashing rules covering all regulated firms, something that will presumably aim to align with what the ASA is preparing for its area of influence.

The building blocks of clear walls that will separate truly sustainable investments and intentions from the rest are being cast. Regulating the word green amidst all of that will likely pose a tall challenge.

The ESG News Review is written by Steve Earl, a Partner at BOLDT

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