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The FCA and ESG: Understanding the Regulatory Landscape

Author: Dr. Angelika Hellweger  6 February 2023
2 min read

Angelika Hellweger of Rahman Ravelli outlines the Financial Conduct Authority’s consultation on tackling greenwashing.

The consultation period for the Financial Conduct Authority’s "Sustainability Disclosure Requirements and investments labels" paper has now concluded.

The paper can be seen as a follow-up to the FCA’s July 2021 letter to the chairs of authorised fund managers (AFMs). That letter was prompted by what the FCA called "poorly drafted" applications for authorised funds. It outlined its expectations and some guiding principles about how its existing rules and other regulatory requirements could be applied in the context of authorised funds that follow a sustainable investment strategy and claim to adhere to ESG (environmental, social and governance) principles.

The letter indicated that the FCA was set to take a tougher approach to those making claims it considered to be greenwashing.


The consultation paper states that the FCA views tackling greenwashing as a core regulatory priority. It proposes a set of rules for doing this.

The rules, which are mainly aimed at the asset management industry, are:

  • The introduction of three categories of sustainable investment product labels. These aim to distinguish between products according to whether there is an intention to invest:

- in assets that are environmentally and/or socially sustainable

- to improve the environmental and/or social sustainability of assets over time

- in solutions to environmental or social problems, to achieve positive, real-world impact

The labels would be based on criteria relating to factors such as investment policy and strategy, key performance indicators, a firm’s attributes and investor stewardship.

  • Restrictions on the use of terms such as “green’’, “ESG’’ and "sustainable" in product names and marketing for products that do not qualify for sustainable investment product labels. There would also be a general rule that sustainability-related claims must be clear, fair and not misleading. Combined, it is hoped that these restrictions will help avoid misleading marketing of products.
  • Investment funds should have to make disclosures to consumers that include (but are not limited to) detailing the investments that consumers may not expect to be held in the investment product.
  • Investment funds should be required to make detailed disclosures about the sustainability-related features of investment products, ongoing sustainability-related performance information and how firms are managing sustainability-related risks and opportunities.
  • Distributors of products, such as investment platforms, would have to ensure that the sustainable investment labels and disclosures to consumers are accessible and clear to consumers and investors.

The FCA examined regulatory regimes and proposals in the European Union and US when devising its rules in an attempt to ensure consistency with greenwashing rules in other countries. It also sought contributions from non-governmental organisations, FCA=regulated firms, foreign regulators and consumer groups.


If introduced, the rules would apply to portfolio managers, managers of UK Undertakings for the Collective Investment in Transferable Securities (UCITS) and managers of Alternative Investment Funds (AIFs) will be subject to the first four rules mentioned. Firms that distribute authorised funds and unauthorised AIFs to retail investors would be subject to the fifth rule. The FCA wants all the firms it regulates to be subject to, at the very least, the rule relating to naming and marketing.

The rules would initially focus on UK-based products before then possibly being applied to overseas products that FCA-regulated firms offer. The FCA expects the final rules to be published by June 30. While some of the rules would come into immediate effect on that date, the rules relating to labels, disclosures to consumers, some of the more detailed disclosures and naming and marketing would apply from 30 June 2024. The requirement to disclose sustainability-related performance information (in an annual report) would apply to the largest firms (asset managers with £50 billion-plus in assets under management) from 30 June 2025 and from 30 June 2026 for smaller firms.

The FCA stated in the consultation paper that it is examining precisely how the rules could be extended to cover overseas products as well as financial advisers and listed issuers.

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Dr. Angelika Hellweger

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Angelika is a specialist in international, high-level economic crime investigations and large-scale commercial disputes. She has widely-recognised expertise in representing corporates and conglomerates in Europe, the Middle East, Africa and United States.

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