UK Regulator to Test Asset Managers’ ESG Claims for Greenwashing

The Financial Conduct Authority(FCA) is part of its broader efforts to ensure investors have access to reliable and transparent information about ESG funds. FCA has warned asset managers in the UK that it will scrutinise environmental, social and governance (ESG) and sustainable investing claims made in their communications with investors. The FCA will look for evidence of improper conduct, such as using misleading terminology or providing assurances without sufficient substantiation. The regulator stated that these tests are part of its efforts to reduce greenwashing risk, ensuring that firms’ ESG-related activities are properly delivered to the public. The FCA has also proposed an additional requirement that firms provide a clear explanation of the rationale behind their ESG investment strategy and how this is reflected in the product’s composition, as well as its expected impact on performance. These requirements ensure that investors receive accurate product information and a detailed understanding of potential risks. In addition, the FCA will ensure that asset managers have governance structures that can effectively supervise and manage the information they use when developing products. This includes data related to ESG, sustainability integration in investment processes, ESG information providers and other sustainability claims made by the firms. The FCA expected that firms would have to demonstrate compliance with disclosure requirements and provide valid documentation to back up any claims made in green finance-related communications with investors.



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