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Greenwashing: rising regulatory temperature for financial services

Author: ICAEW Insights

Published: 28 Oct 2021

In advance of COP26, Financial Services Faculty Board member Nikesh Pandit, Barrister at 4-5 Gray’s Inn Square, and Alessia de Quincey, Solicitor Advocate at Boies Schiller Flexner LLP, explore the financial services regulators’ increasing focus on greenwashing, and how they might use their existing powers to prevent it.

As the world gathers in the UK for COP26, the UN Climate Change Conference, the green agenda is expected to be at the forefront of the public consciousness as never before. A core goal of COP26 is to mobilise finance. It aims to make good on developed countries’ promise to mobilise at least $100bn in climate finance per year by 2020, placing greater pressure on international financial institutions to play their part in this effort.

COP26 may therefore usher in an unprecedented public demand for green financial products and a burgeoning supply of such products in the market. Whilst this may have the positive effect of advancing the fight against climate change, a booming market may also heighten existing regulatory risks. One such core risk is “greenwashing”, the practice of exaggerating a company's or product’s green credentials, thereby misleading consumers and hindering meaningful climate action.

Although a number of regulatory reforms are in train, the Financial Conduct Authority has confirmed that it does not require new powers or rules to fight greenwashing and will be able to use its existing powers to undertake enforcement in this area. As COP26 focuses minds around the world and increases demands for green financial products, firms need to be aware of:

  • Conduct that might be considered greenwashing
  • The regulatory initiatives being taken to mitigate the risk of greenwashing
  • How to manage their legal and reputational risk and safeguard against allegations of greenwashing

ICAEW’s Financial Services Faculty have published a guide, authored by Pandit and de Quincey, to provide firms with insights into how regulatory powers might be used, ongoing initiatives in this area and practical tips to manage risk. The guide is available here: Greenwashing in financial services - rising regulatory temperature.

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