By Charlie Conchie
A top investment body has slammed the UK’s financial services regulator for moving too fast on environmental, social and governance (ESG) rules today, claiming it risked “dislocating” a major section of the sector.
Officials at the Financial Conduct Authority (FCA) announced plans in October to clampdown on the labelling of ESG financial products in a bid to stamp out rampant greenwashing by investment firms.
However, Chris Cummings, boss of the Investment Association, told MPs in a select committee hearing that the regulator was looking to concertina the regulatory progress into a year and was jeopardising the regime as a result.
“That’s not the work of a year. [It] doesn’t mean we shouldn’t start, of course we should start, but please let’s not impose the end state before we’ve been through the transition,” Cummings told the Treasury Select Committee.
“This is just too important for the FCA to do one discussion paper, one consultation paper, and then a set of rules, perhaps recognising that they’re excluding 60 to 70 per cent of the market. That could lead to such a large dislocation.”
Under the proposals announced in October, firms will be forced to justify labels like ‘ESG’, ‘sustainability’ and ‘green’ against objective criteria, which the regulator has admitted would shut out some 70 per cent of funds currently claiming green credentials.
Cummings warned the impact of the move would damage the investment industry and told the FCA not to “regulate at haste and repent at leisure”.
However, the FCA’s director of ESG Sacha Sadan hit back at the criticism later in the session, saying it was integral that investors knew what went into the products they were buying.
“People want to buy these products, remember that people are buying them already. And if we can help make some guardrails – the same that’s happened in other industries, food labelling and others – we can help,” he told MPs.
He added that if an asset manager is marketing a product as green then they should be able to prove it to investors.
“We are not telling them what the metrics are, so we’re not being too rigid. An asset manager who’s selling a product should be able to come up with some metrics that show a consumer, what they’re doing with their money,” he added.
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