The regulator also wants to ensure that regulated financial services firms integrate consideration of material climate change risks and opportunities into their business, risk and investment decisions.
Its FS19/6 feedback statement assesses the responses to its previous discussion paper Climate Change and Green Finance, and the next steps it plans to take.
Greenwashing
One of the key concerns highlighted was the “potential greenwashing” of products and the FCA said it would be conducting further analysis and taking action where necessary.
“We have carried out some initial diagnostic work on firms’ sustainable product offerings, to gauge whether there is evidence of potential greenwashing,” it said.
“Early indications from this work are that the ‘sustainable’ label is applied to a very wide range of products.
“On the face of it, some of these do not appear to have materially different exposures to products that do not have such a label.”
However, the FCA acknowledged that assessing this was complex and there can be legitimate causes for differences in assessments and it can be difficult to determine the net impact.
As a result, the regulator reminded firms how products pursuing environmental, social or other non-financial objectives should be set out clearly, fairly, not misleadingly and how they will be measured.
“Ultimately, our focus is on ensuring that investors and consumers are not misled or mis-sold products that fail to meet their needs,” it added.
“Going forward, this will remain an active area of focus in our supervisory and policy work. We will challenge firms where we see potential greenwashing and take appropriate action to prevent consumers being misled.”
Climate risk disclosures
The FCA is also considering developing disclosure rules for regulated firms taking account of the different impacts from climate-related issues that different firms face.
This proposal from the discussion paper received wide-ranging support, with only two of the 60 respondents seeing no need for such reporting.
However, one barrier to the growth of the green finance sector cited by around half the 45 respondents to this question was the persistence of a ‘short-term results culture’ in finance.
“Some respondents noted a general lack of engagement, understanding and awareness of climate change risks, both on the demand and the supply sides of the market,” the FCA said.
“They noted that there remains a general perception that investing in sustainable products will sacrifice returns. This was seen to be limiting the uptake of green products.”
It continued: “We acknowledge the strong support for introducing disclosure requirements for regulated firms, aligned with or based on the Taskforce for Climate-related Financial Disclosures’ (TCFD) recommendations.
“We agree that there is a case to consider developing rules in this area, taking account of the different impacts from climate-related issues that different firms face.”
