The UK’s financial watchdog is looking to come up with ways to label investment products with sustainability characteristics, so that investors can put environmental, social and governance (ESG) matters “at the heart of their decisions.”
The Financial Conduct Authority (FCA) published a discussion paper on Wednesday to coincide with Finance Day at the United Nations' climate change conference (COP26), inviting views on potential criteria to classify and label investment products according to their impact on the environment.
“It is vital that we innovate to support industry’s shift to a more sustainable future. That is why the FCA has been leading from the front,” said Nikhil Rathi, FCA’s CEO, during his speech at the summit.
“Developing consistent, trusted standards are a vital part of that, giving investors the confidence to put their money where it can deliver the most sustainable outcome."
Watch: What is net zero?
He also said the financial sector can only support the transition to net zero effectively if consumers can trust firms to deliver on their promises.
"Recently, we’ve seen growing scepticism about some companies’ and financial firms’ 'green' claims. We can’t let this greenwashing persist and risk the flow of much-needed capital to help secure our futures. That’s why ESG issues are so high on our regulatory agenda. And that’s why I’m here at Finance Day."
In a recent survey, the FCA found 80% of respondents wanted their money to ‘do some good’, while also providing a financial return.
According to the discussion paper, 71% wanted to ‘invest in a way that is protecting the environment’ and 71% would not put their money into ‘investments which are unethical’.
Rathi also said responsible investment funds accounted for almost 40% of net UK retail fund sales last year.
The FCA said it believes if the financial sector is to respond effectively to this growing demand ethical investment, consumers need high quality information and clear standards, and they need to be able to trust firms to deliver on their promises. The FCA also encourages stakeholders to engage with the Discussion Paper.
The discussion paper forms part of the FCA’s new ESG Strategy, which sets out the FCA’s critical role in supporting the transition to a more sustainable economy, working with industry, listed companies and international partners.
Earlier in the day at COP26, chancellor of the exchequer Rishi Sunak said the UK is set to become the world's "first ever net zero aligned financial centre."
Sunak lauded the Glasgow Financial Alliance for Net Zero (GFANZ) for bringing together financial organisations with assets worth $130tn (£95tn) of capital to be deployed – "this is a historical wall of capital for net zero transitions around the world," he said.
Watch: How long does it take to pay off a student loan?