The chair of the influential Treasury committee has slammed the Financial Conduct Authority (FCA) over its planned ‘greenwashing’ rules, claiming the regulator landed on “suspiciously round numbers” to justify the plans and questioning the methodology it used to reach its conclusions.
Harriett Baldwin, who was elected to chair the committee at the end of last year, wrote to FCA chief Nikhil Rathi in December quizzing the regulator over its proposed rules for environmental, social and governance (ESG) investments and questioned how effective the FCA could be in enforcing the measures.
The spat comes after the FCA revealed plans in October to scrutinise companies use of terms like ‘ESG’, ‘green’ or ‘sustainable’ in a bid to prevent firms from misleading investors about the green credentials of certain investments, known as greenwashing. Among the headline measures of the plans was a scheme to introduce “sustainable investment product labels” that would look to boost trust in investment products.
Baldwin has questioned the watchdog’s methodology, however, casting doubt over the regulator’s claims that a hefty portion of firms would fall foul of the proposed rules.
“The Financial Conduct Authority states that one third of investment funds wouldn’t qualify, one third wouldn’t apply for regulation under their new sustainability labelling proposals, and another third will qualify and apply,” she said in a statement today.
“It isn’t clear what methodology the regulator has used to come to these suspiciously round figures, and if they have fully considered the consequences of their proposals for sustainable investing. That’s why we’ll be conducting further work in this area soon,” Baldwin added.
In the letter sent to Rathi, sent in December and published today, Baldwin asked the regulator to explain how it would enforce the rules as well as the impact of letting firms create their own labelling.
“Allowing every firm to create its own consumer sustainability labels may lead to inconsistencies and consumer confusion,” she said, adding that the Treasury and the FCA should first consult on the merits of making climate or carbon labels for consumer financial products mandatory.
Baldwin’s comments point to a potential flashpoint between the committee and the regulator as it looks to push ahead with new rules on ESG investing. A framework for regulation is due to be published in the first half of this year.
The FCA has been an early mover in laying out a new rules for ESG investing, as other financial regulators around the world consider setting out standards around environmental claims to clampdown on greenwashing.
A spokesperson for the FCA said today that it “welcomed comments both on our proposals for sustainable investing and our view of the costs and benefits”.
“We also provided the committee with more detail on the assumptions we used. We received a large number of responses and are currently carefully considering these. We will publish a final response later in the year,” the spokesperson added.