Over recent years, accusations of greenwashing in the financial services industry have been rife. With green investments now so popular, investors understandably want to know if their choices are genuinely green, or whether false information or exaggerated or misleading claims are being made to make a product appear greener than it really is.
Greenwashing is of such concern that in October 2022, the FCA proposed a new package of rules to clamp down on the behaviour – including sustainability labels and restricting the use of certain terminology.
However, could this lead to “green-bleaching” becoming a problem?
What is green-bleaching in investing?
It’s not just the FCA that’s looking to clamp down on greenwashing. As of March 2021, The European Commission’s Sustainable Finance Disclosure Regulation (SFDR) has been in force. This regulation aims to make sustainable investing more transparent, as well as to prevent greenwashing.
While such legislation helps to protect consumers, its legal ramifications are confusing to many. For that reason, fund managers are being accused of green-bleaching: deliberately underplaying the sustainability of their investments to avoid any risk of legal action.
But is this actually an issue that needs addressing?
In March 2023, the Securities and Markets Stakeholder Group (SMSG) responded to a call for evidence on greenwashing by The European Securities and Markets Authority (ESMA). In their response they noted that EU authorities should ensure that any new rules relating to greenwashing should also cover green-bleaching.
Their view is that greater transparency around greenwashing – and ESG investing as a whole – should help to tackle the issues. With better guidance to cover legally permissible representations of green investments, they say, fund managers should feel more confident in labelling their investments with the correct sustainable credentials.
With more and more people looking to invest their money in sustainable ways, the fact that the industry is underplaying green credentials may mean that investors are being given fewer options that suit them. Greater transparency could well mean that it becomes even easier in the future to find investment opportunities that truly suit individual needs.
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