The U.K.'s Financial Conduct Authority proposed anti-greenwashing rules Tuesday with new categories of investment fund labels for fund managers and restrictions on how terms like "ESG," "green" or "sustainable" can be used.
In its announcement on the Sustainability Disclosure Requirements proposal , the FCA said it is also stepping up its supervisory engagement on sustainable finance and enhancing its enforcement strategy.
It is also planning another consultation to extend the proposals to retirement products "in due course," it said in a statement. Future plans include extending the scope and content to overseas products and providing more guidance for advisers.
The new sustainable investment product labels proposal is based on objective criteria and includes three categories: "sustainable focus," "sustainable improvers" and "sustainable impact."
The FCA also proposed restrictions on how certain sustainability-related terms, such as ESG, green or sustainable, can be used in product names and marketing for products that don't qualify for sustainable investment labels.
The comment period is open until January 25, and FCA officials said they will present final rules in by the middle of next year.
James Alexander, chief executive of the UK Sustainable Investment and Finance Association, said the proposal is not about prescribing what fund firms have to do. "This is about the FCA saying, if you want to call your fund sustainable, then it has to meet a certain set of criteria, which should eliminate the greenwashing. "
"We actually want this to become a leading framework other countries might consider adopting as well," Mr. Alexander said in a podcast.
"I hope that this will transform the approaches that we take to thinking about how we determine what our funds are for, how we market those and how we sell them. The way that you describe your fund is now going to be regulated as well," he said.
While much of focus of the rules is on protecting consumers, "we know that a lot of institutional investors are really excited about this process as well because there is a lot of confidence that needs to be built," Mr. Alexander said.