MEPs report calls for action to prevent ‘greenwashing’ of financial products Business News

Financial investment products should be clearly labeled according to their impact on climate change, so investors can avoid investing their money in polluting industries, a parliamentary report said.

The House of Commons Treasury Committee has warned consumers are being misled by “greenwashing”, with financial institutions marketing funds and indices as environmentally friendly, even though they include fuel companies fossils.

In a report to mark International Earth Day, the multi-stakeholder panel urged the Treasury and Financial Conduct Authority to consult on mandatory green labels for financial products as well as new powers for the regulator to crack down on misleading climate claims.

The report highlighted the previous inclusion of large oil companies like Rosneft and ConocoPhillips in the FTSE4Good index, which promises to measure the performance of companies demonstrating strong environmental, social and governance (ESG) practices.

And he said investors who put their savings in tracking funds, which track the movements of major indices, may inadvertently invest money in polluting companies against their intentions.

“It is clear that in some cases the labels or descriptions of ‘green’ or ‘climate related’ indices do not necessarily correspond to the legitimate expectations of consumers as to what they would generally mean,” the report said.

The Treasury and the FCA should “consult each other on the merits of making climate or carbon labels compulsory for consumer financial products” and on “the best way to make these labels easily and widely understood”.

And the Treasury and regulators should ensure that all indices – whether conventional or “climate-friendly” – clearly define the overall carbon footprint of the assets they include.

The Treasury must ensure that the FCA has the appropriate mandate, powers and priorities to prevent the greenwashing of financial products available to consumers, the report says.

The committee also urged the FCA to encourage innovation in green finance products and services, including through the FinTech Challenge program.

And he said ministers should ensure that retirement savers are not forced out of default plans in order to be able to invest sustainably.

The report also called on the government to establish cost assessments of meeting Boris Johnson’s goal of net zero carbon emissions by 2050.

Treasury Committee Chairman Mel Stride said: ‘Government, private finance, consumers and regulators all have a vital role to play in helping the UK achieve net zero carbon emissions by here 2050.

“The UK is a world leader in financial services. When the eyes of the whole world are on us for Cop26, we need to show that we can also be a green finance powerhouse to help achieve net zero.

“Today, on International Mother Earth Day, we made a series of recommendations to government and associated public bodies on how the UK can meet its climate change commitments. “