UK Financial Watchdog Says Some Funds Mislead Investors With ESG Label

Britain’s financial watchdog said on Thursday it was having to “push back” against some investment funds that misleadingly attempt to label themselves as being focused on environmental, social and governance (ESG) based performance.

Regulators across the world are seeking to crack down on “greenwashing,” or over-inflated climate friendly claims by companies and funds to attract investment.

There are huge numbers of applications from funds seeking to register as being ESG-focused funds or re-labeling themselves as sustainability-focused as a large volume of money enters the fast growing investment sector, said Mhairi Jackson, policy lead in asset management at the Financial Conduct Authority (FCA).

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“We have seen some passive funds with ESG related names that are actually just passive funds, they are just replicating normal indexes that don’t have a ESG focus, which we deem to be completely misleading and something we have been pushing back on,” Jackson told a conference held by Luxembourg funds industry body Alfi.

“We’ve also seen some funds come through where the fund’s proposed holdings differ very much from the objectives and the statements that they are holding our to be true,” she said.

One fund that was calling itself sustainable was invested in a large number of high carbon emitting companies in its top 10 holdings, she added.

The FCA has been consulting on new sustainable disclosure requirements for investment funds, and is now considering the feedback before issuing final rules.

The watchdog has been reconsidering its original proposals for marketing restrictions that were set out in the consultation paper, and refining criteria for qualifying for an ESG label, Jackson said.

(Reporting by Huw Jones; editing by Mark Potter)