New labelling rules will help combat greenwashing and increase interest in sustainable investing, a finance expert has predicted.
Holly Mackay, founder of Boring Money, said the range of new measures that aim to improve labelling for sustainability funds will play a pivotal role in breaking down barriers to the market.
She believes this is vital because greenwashing is an obstacle to investing in sustainability funds, after research by Boring Money found seven in 10 investors still think many products that say they are sustainable actually aren’t.
Speaking about the first anti-greenwashing rule that will start from May 31 and will mean sustainability-related claims must be fair, clear and not misleading, Mackay said: “There are concerns about greenwashing. There is a scepticism out there. Investors don’t believe the label being put on these products.
“We think the new sustainability labels will help overtime and become an important driver in restoring confidence that is currently lacking.”
However, she added that official and verified labels alone will not be enough because consumers need help understanding the complexity of the sector.
She said: “The need for clear sustainability language is obvious. Many commonly used sustainability terms have very low understanding. Even among those who hold sustainable funds – just 23 per cent could explain environmental, social and governance to a friend and just 14 per cent could explain sustainable development goals.
“We have been tracking consumer appetite for sustainable funds for years. We saw a spike during the pandemic, followed by a drop in appetite and growing concern about greenwashing.
"Despite some signs of a recovery, it is clear that even with these new proposed labels, firms will have to do a lot more work around communicating what these products actually do and what the intent and objective of the fund actually is.”
Sustainability rules
She made the comments during a webinar today (May 15), where she unveiled Boring Money’s latest research entitled Sustainable Investing Report 2024: Demand & Disclosure.
The analysis quizzed 13,000 people over the past year and included recommendations for providers in response to the Financial Conduct Authority’s sustainability disclosure requirements (SDR).
These are a series of measures that aim to address anti-greenwashing, fund labelling, disclosures and distribution.
This includes the anti-greenwashing rule, which will apply to all regulated firms and will be followed by the launch of four new sustainability labels that will come into effect from July 31.
These will apply to UK domiciled fund and UK asset managers.
To use the label of ‘sustainability impact’, ‘sustainability focus’, ‘sustainability improvers’ or ‘sustainability mixed goals’ a firm will need to show its intention to invest with the aim of improving or pursuing positive environmental or social outcomes.
Finally, the naming and marketing rules will apply from December 2 to UK asset managers. This will specify use of sustainability-related terms for products that do not have a label.
