Jurisdiction(s):
United Kingdom

Greenwashing enforcement in UK financial services: without clearer standards and stronger FCA powers, policing ESG claims will rely on private litigation, with risks for the net-zero transition

Published on: 01 September 2022

Published by an LexisNexis Financial Services expert

Legal News

Article summary

With the global shift towards net zero, a swell of lawsuits targeting firms that misrepresent their offerings as green is looming. However, although the UK watchdog has repeatedly vowed to tackle ‘greenwashing’, including through enforcement, the law does not invariably favour the Financial Conduct Authority (FCA). As environmental activists and disgruntled investors bring claims against businesses for overstating the sustainability of their products, the regulator’s capacity to intervene will seem ever more constrained unless its powers are strengthened. Without stronger powers, the regulator’s ability to act will look increasingly reduced, particularly as allegations accumulate and claimants press for action against exaggerated sustainability claims. Activity on sustainable finance is progressing at pace in the UK. In November 2020, the government was first to unveil mandatory climate-risk reporting. By the close of 2023, major financial institutions and listed corporates must publish transition plans, or explain why they have not. The UK is also developing a green taxonomy, echoing frameworks finalised in the EU, to define which activities or investments qualify as sustainable. Yet there remains uncertainty over what amounts to greenwashing within financial services, and which body will respond when it occurs, even though richer information for investors should help in providing...

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