MPs criticise ‘lopsided’ plans to prevent investment funds from greenwashing

The Financial Conduct Authority (FCA) must do more to tackle investment funds that have misled customers with exaggerated sustainability claims, and not punish victims, a cross-party group of MPs has said.

Under current proposals to tackle greenwashing, consumers who invest in funds found guilty of the practice may have to pay to move their investments into new sustainable funds.

However, the Treasury Sub-Committee on Financial Services Regulations is concerned that the FCA has not put a figure on how much this will cost, and has now called on the regulator to conduct a more detailed cost-benefit analysis.

The MPs have also asked the regulator what enforcement work it will be doing to tackle funds who have misled consumers following revelations that some ‘sustainable’ investments have gone to oil and gas giants Shell and ExxonMobil.

“Consumers who invested in funds believing they were doing their bit to save the planet must not be made to bear the cost of moving if they find out their fund isn’t so green after all,” said Harriett Baldwin, chair of the committee.

“Without a comprehensive cost-benefit analysis, the regulator’s proposals are lopsided. Further work on what the costs are going to be, who will pay, and how the regulator will enforce the rules, is clearly necessary.”

The FCA is looking to introduce criteria that an investment fund would need to meet to describe itself as ‘sustainable’, ‘ESG’, ‘green’, or similar.

It assumes that around one-third of funds currently claiming to be sustainable would no longer qualify under its new criteria, and another third would decide not to use the label.

As a result, the Treasury Committee has also asked the regulator whether there is a risk that tighter regulations could drive funds away from ESG investing, or out of the UK, reducing consumer choice.

This comes after research by climate solutions provider South Pole last year found that a quarter of large companies have decided not to publicise their net-zero targets, which has raised fears that many are now greenhushing.

CEO, Renat Heuberger, said: “Businesses are increasingly backing up their targets with science-based emissions reductions milestones. But if a quarter aren't coming forward with details on what makes their target credible, could corporate greenhushing be spreading?

“The speed at which we are overshooting our planetary boundaries is mind-blowing. More than ever, we need the companies making progress on sustainability to inspire their peers to make a start. This is impossible if progress is happening in silence.”