In this analysis, Stephanie Landymore, Sustainability Lead at Ecology Building Society, explains the new guidance which came into force on 31st May as well as what it means both for FCA-authorised firms and for consumers
As the climate crisis worsens and cost of living and energy crises continue to bite, everyone should be able to choose finance safe in the knowledge that it is genuinely ‘green’. That’s why the Financial Conduct Authority’s (FCA’s) new anti-greenwashing rule and guidance for financial products are a step in the right direction. Phasing out financing for fossil fuels and moving more investment into renewable energy, clean tech and projects to improve the energy efficiency of buildings are among the ways financial services can help to tackle climate change and ensure a better future for everyone.
The FCA’s new rule and guidance require that all sustainability claims are backed by robust, credible evidence. As well as helping to create a level playing field in this fast-evolving market, they aim to provide savers and investors with clarity around what is, and isn’t, a genuinely green home for their money.
We at Ecology Building Society welcome this focus on greenwashing. We believe everyone should be able to select a financial product that aligns with their values and trust the providers offering them. However, the FCA’s measures can and should go further.
Full transparency is fundamental to our building society’s ethos. We can show our savers exactly where their money is going. And we think that should become the sector norm. Too many people are currently being kept in the dark. Our research revealed over half of UK savers don’t know how their bank or building society uses their money. It’s only fair that they should be told what their hard-earned cash is funding.
That’s why we don’t see the FCA’s new anti-greenwashing rule and guidance as a fully realised solution – but a stepping stone towards greater clarity and simplicity around financial products and services badged as green. The sector needs to go further if it wants to build public trust in a changing world.
Financial advisers can be key to making this happen. This is a moment of real opportunity for advisers to help their clients get the answers they need. While green finance remains a young sector, it is set to go mainstream, as financial service providers and institutions respond to tightening regulation and evolving customer needs. The reality is that we’re living through a cultural shift in terms of how and where people want to invest their money.
The FCA’s own research found 74% of adults said environmental issues are really important to them and 79% think businesses have a wider social responsibility than simply making a profit. As public understanding of the climate crisis grows, people don’t want to invest their savings in projects that threaten their own, their children and their grandchildren’s futures. What we now call green financial products are soon going to become the norm.
Informed advisers can lead the charge when it comes to upgrading our financial system and signposting people towards the responsible products that they increasingly want. There is a dearth of specialist support about simple, sustainable savings. We recently launched our new Savings Hub to help address this, and trusted financial advisers have a key role to play in explaining truly sustainable investment options to their clients.
Some of the claims financial services providers have been using up until now to describe so-called green products are a reason why so many people in the UK don’t understand the language of sustainability. By helping them overcome this knowledge gap, advisers can help ensure their clients’ savings are invested in ethical accounts that align with their values, and unleash their power to influence responsible business behaviour at scale.
It’s time for financial advisers to be bold. The new FCA anti-greenwashing rule and guidelines don’t mandate transparency. Financial advisers can do better, find companies and institutions for their clients that are not afraid to say exactly where they invest savers’ money.
There are some standards which can help them direct clients towards the greenest products. For example, in terms of mortgages and finance for purchasing, retrofitting or self-building a home with verifiable environmental benefits, they should seek out providers who have adopted the Green Finance Institute’s voluntary Green Home Finance Principles.
At Ecology Building Society, we were an early adopter of these principles. In practice, it means we reward our mortgage Members with a C-Change discount on their interest rate, according to the energy efficiency of their homes. And by saving with us, people help to fund innovative green and sustainable homes, businesses and communities across the UK.
On an overheating planet, the finance sector has a critical role to play in efforts to keep our climate habitable. By explaining to their clients what truly green products look like and recommending trustworthy providers, financial advisers can embrace this historic opportunity and lead the transformational shift to a better finance system that works for the good of people and the planet. They can do that by seeking out firms and institutions that are fully transparent about what they do with their customers’ money.
