The Financial Conduct Authority (FCA) is releasing new measures to battle greenwashing and improve the trust and transparency of sustainable investment products.

‘Greenwashing’ is a term referring to false sustainability claims made by corporations to profit from climate-conscious consumers. Common greenwashing tactics include planting trees to offset carbon emissions, claiming manufacturing processes are green or use less water, and claiming a product is sustainable if it uses just one sustainable product.

These claims often go unchecked, leaving consumers in the dark, and allowing more companies to claim they are environmentally friendly in order to gain more consumer trust.

In just the past year, RepRisk found that 893 European businesses were at high risk of greenwashing over some of their environmental claims, be it directly mislabelling products or misleading consumers and investing in non-sustainable ventures.

$18.4 ESG (environmental, social, corporate governance) assets are now being managed globally, prompting the FCA to create new Sustainability Disclosure Requirements and an investment labels regime.

These requirements were decided after detailed engagement with a range of stakeholders, including industry, other regulators, and consumer groups.

The package of measures, including the consumer-focussed labelling regime, aims to protect consumers by helping them make more informed decisions when investing and enhance the credibility of the sustainable investment market.

According to the FCA’s research, investors were not confident that sustainability-related claims about investments were genuine, which is exacerbated by a lack of consistency of using terms like green, ESG, or sustainable.

The measures will include an anti-greenwashing rule for all authorities firms to make sure sustainability-related claims are fair, clear, and not misleading.

Product labels will also be required to help investors understand what their money is being used for, based on more clear sustainability goals and criteria.

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Further, products will not be able to describe themselves as having a positive impact on sustainability when they do not via new naming and marketing requirements.

“We’re putting in place a simple, easy to understand regime so investors can judge whether funds meet their investment needs – this is a crucial step for consumer protection as sustainable investment grows in popularity,” Sacha Sadan, director of environmental, social and governance at the FCA, said.

“By improving trust in the sustainable investment market, the UK will be able to maintain its position at the forefront of sustainable finance, and capture the benefits of being a leading international centre of investment.”

The new requirements are further backed by a consumer test on 15,000 people, and follows the FCA’s Financial Lives survey which highlighted how the majority of UK adults would prefer to invest in sustainable products with a positive social impact.