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FCA urged to take action against ESG fraud

by LLB Reporter
12th Jan 22 11:13 am

The Association of Investment Companies (AIC) has proposed that demanding standards should be set for funds that call themselves “sustainable” or make ESG claims.

In its response to the FCA’s discussion paper ‘Sustainability disclosure requirements and investment labels’ (DP21/4), the AIC also argues that product labels should distinguish between products that focus on environmental sustainability and those targeting positive social change, though it would be possible for a single fund to carry both labels if it met the standards.

Finally, the AIC recommends that the same standards are applied to all retail investment products that fall under the PRIIPs and UCITS regimes, including investment companies.

Richard Stone, Chief Executive of the Association of Investment Companies (AIC), said: “People buying investments that are labelled ESG or sustainable expect them to make a real difference, rather than being a marketing opportunity for product providers. Unfortunately, we are still in a situation where too many ESG claims do not stand up to scrutiny, as the FCA has already highlighted. This threatens to undermine investors’ confidence in ESG investing as well as getting in the way of positive change.

“We believe the bar for investment products to call themselves sustainable should be set high enough to clearly differentiate them from other products. Product labels should be clear, and disclosures should be short and jargon-free. It’s also important that investors know whether those products are focusing on environmental sustainability, social issues, or both.

“Finally, rather than the new disclosure regime applying to some products but not others, all retail investment products should be within the scope of the regime including investment companies. Investment companies are well placed to invest in less liquid assets that can have a large environmental or social impact: for example, our Renewable Energy Infrastructure sector raised a record £3.4 billion last year. They should be held to the same standards as other investment products so that investors choosing an investment for its sustainability credentials can compare like with like and have confidence that the label is meaningful.”

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