The Financial Conduct Authority (FCA) has said it will target “outlier firms” over their ESG and stewardship practices as it looks to crack down on greenwashing concerns.
In a Dear CEO letter to asset managers published on 3 February, the FCA said it will test whether firms deliver on the ESG claims to investors, honing on asset managers that have previously been targeted for “ongoing surveillance”.
It comes following a significant rise in ESG and sustainable investment products being pushed by asset managers and growing risk that ESG investing is “misleading and inaccurate”.
“Our supervisory activities will focus on the governance structures that oversee ESG and stewardship considerations, and we will test whether firms deliver on the claims made in their communications with investors,” Camille Blackburn, director of wholesale buy-side at the FCA, said.
“We will particularly focus our supervisory activities on outlier firms that have been identified in previous supervisory activities or other ongoing surveillance.”
As a result, the UK financial watchdog said it will look to ensure governance bodies are robust enough to oversee information about product development, ESG and sustainability integration in the investment process.
“Inaccurate or misleading information may negatively impact the integrity of the UK financial disclosure regime and is likely to harm consumers’ confidence to invest,” Blackburn added. “In addition, it undermines efficient allocation of capital intended for delivery to environmental and social outcomes.”
The FCA has been increasing its efforts to clampdown on greenwashing over the past year and last October proposed a raft of fresh measures including sustainable investment labels and consumer-facing disclosures to boost consumer trust, making the key sustainability features of a product much clearer under its Sustainable Disclosure Regulation (SDR).
In response to the FCA’s consultation, the Investment Association said the majority of ETFs will find it “very difficult” to meet the labelling criteria.
The regulator added it will publish shortly the results of a review into some firms’ ESG oversight practices, which asset managers will then be expected to use as a benchmark of their practices.