FCA’s new greenwashing regulations

How will the FCA’s new greenwashing regulations affect the housing sector?

Last week the Financial Conduct Authority (FCA) announced its plans to crack down on greenwashing with new regulations, including how green terms like ESG, Green or sustainable can be used and sustainable investment product labels.

What’s considered greenwashing?

Greenwashing is when an organisation markets itself as environmentally friendly without minimising its environmental impact. It’s classed as a deceitful marketing tactic to mislead customers who prefer to buy products from environmentally conscious brands.

What do the latest FCA regulations say?

The FCA is proposing to introduce a variety of different regulations to keep a lid on greenwashing.

Of these, it wants to introduce sustainable investment product labels that give consumers the confidence to choose a product that suits them. There will be three categories for the labels, including one for products improving their sustainability over time. Each will be underpinned by objective criteria.

It’s also going to clamp down on how particular sustainability-related terms, such as ESG, green or sustainable, are used in product names and marketing of the product in a bid to avoid misleading marketing of products.

As well as consumer-facing disclosures to help them understand the key sustainability-related features of an investment product and more detailed disclosures for institutional investors or retail investors that want to know more.

Those in the housing industry offering green initiatives must meet these new criteria and ensure that their marketing and consumer-facing disclosures tick all the right boxes and are accessible and clear.

Sacha Sadan, the FCA’s Director of Environment Social and Governance, said:

“Greenwashing misleads consumers and erodes trust in all ESG products. Consumers must be confident when products claim to be more sustainable that they actually are. Our proposed rules will help consumers and firms build trust in this sector. This supports investment in solutions to some of the world’s biggest ESG challenges. This places the UK at the forefront of sustainable investment internationally. We are raising the bar by setting robust regulatory standards to protect consumers in line with our wider FCA strategy.”

Why is net zero so crucial for the housing sector?

Whilst many people point to cows or cars in their search for a greener future, the housing market holds a large portion of the responsibility. In fact, according to the Energy Savings Trust, the housing sector is responsible for 21% of carbon emissions in the UK.

With almost a quarter of the green burden falling on the sector, we urgently need to look at how we can go green and act quickly to meet the priorities and goals set at COP26. It’s time to evolve green housing and green finance to make them accessible, appealing and realistic to customers.

Many significant providers are already on a green-motivated mission. As Esther Dijkstra, Managing Director of Intermediaries at Lloyds, told us last year:

“Our main goal is to go green. This may be helped in the coming years with a rise in initiatives for customers to make greener choices, such as the government’s Renewable Heat Incentive for homeowners to help reduce our carbon emissions.”

With eco-conscious consumers demanding more options, we must ensure we have the right opportunities for them and balance them with the FCA’s latest demands.

How will the FCA’s proposal affect the housing industry?

Greenwashing is an issue that needs to be addressed, so it’s encouraging that the FCA is taking the reins and clamping down on it across Financial Services. Having more stringent guidance can be used as a tool to develop more robust offerings for buyers.

However, the sector has already taken strides towards a greener future whilst overcoming a national and international challenge. Organically organisations have been working towards green solutions for customers, so it’s essential that the FCA’s latest requirements don’t stunt the sector’s growth or get in the way of innovation. Instead, it must complement the sector’s ambition to develop the right outcome for customers without revolving around profits.

For mortgages to have the desired effect on a greener future, meet the FCA regulations and be effective for customers, the customer always has to come first. They can’t be disengaged or put off by the importance of what we’re all working towards.

By James Tucker, CEO at Twenty7Tec.

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