As mentioned in previous posts, there are many ways to define sustainable finance and greenwashing.
The FCA and ShareAction are just two prominent organisations within financial services who are trying to tidy up the market by providing firm definitions of various terms. They are both aiming to improve the industry by targeting greenwashing and helping to improve consumer understanding. The FCA have been consulting with financial firms to define their Sustainability Disclosure Requirements (SDR) and ShareAction have recently released their RISE campaign.
FCA – Sustainability disclosure requirements (SDR)
The FCA have realised that they need take action regarding firms marketing “sustainable investments”. In 2022, they announced that they would develop a range of measures to tackle issues such as greenwashing and the accurate labeling of sustainable investments. They created a proposal to increase transparency within financial services.The proposed measures include sustainable investment labels. They originally proposed 5 labels, but this has now been reduced to 3; sustainable focus, sustainable improvers and sustainable impact. They also announced an anti-greenwashing rule which clarifies the need for claims to be fair, clear and not misleading. They had a lot of feedback on this proposal,so we are still waiting for an official outcome. The consultation on the proposal ended in January 2023, and the results are expected towards the end of the year.
If put into action, the SDR will apply to firms that handle investment products for retail investors, distributors of certain investment products and FCA regulated firms. For more information regarding the SDR, click here.
ShareAction - RISE
ShareAction are a registered charity who aim to influence corporate behaviour through investor engagement. The purpose of their work is to improve the standards within the financial system and, as a result, the wider real economy. For more information regarding who ShareAction are, click here. We’ve also previously worked with them. In May 2023, Julian and Marian attended the AGM of Lloyd’s Banking Group to ask a question on behalf of ShareAction, to read about that, click here.
As part of this work, they have recently announced their new initiative to create a financial services sector that is transparent and accountable. They believe that investors are confused about what social investing is due to the sector’s lack of ambition to action change and their narrow focus on profit maximisation.
Their new initiative is titled “Responsible Investment Standards and Expectations” or RISE. The purpose of RISE is to provide practical steps to allow the industry to work towards being truly responsible. ShareAction recommend that financial professionals follow their guidelines to ensure that they, and by extension their clients, are being truly responsible. They believe that responsible investment is:
“[A] transparent approach, embedded throughout the investment process, that takes the negative and positive impacts on people and planet as seriously as financial risk and return.”
For more information regarding the specifics of their new initiative, click here.
So, although there is still work to be done to ensure clarity and transparency surrounding our sector, it is clear to see that there is a desire for change.
It is important to take professional advice before making any decision relating to your personal finances. Information within this article does not provide individual tailored investment advice and is for guidance only. We cannot assume legal liability for any errors or omissions it might contain. Ethical Futures llp is authorised and regulated by the Financial Conduct Authority.