Purpose on Payday: SEC Newgate's view

By Ian Morris

While October’s political omnishambles has had numerous implications for the green agenda, with yet another new Prime Minister and subsequent ministerial changes (more of this later), an issue that has offered a more certain outlook for organisations is that of greenwashing.

This month we saw significant moves to clamp down on greenwashing. The Financial Conduct Authority (FCA), the UK’s financial regulator, proposed a number of restrictions to curb it, which it intends to bring into force in mid-2023.

Its proposals included restrictions on investment managers using terms such as “green” and “ESG” in the marketing of funds; the instigation of a set of three consumer-friendly labels to distinguish types of green investment; and heightened requirements on firms to back up their marketing claims with evidence.

‘Responsible investment’ products are highly popular amongst private investors, with the Investment Association saying over a third of net inflows into UK retail funds went into these products in 2021. However, there are many concerns around funds that are branded as sustainable while including investments such as fossil fuel companies that many investors would consider unsuitable.

This month, the Advertising Standards Authority also reprimanded HSBC for its advertising, saying it was misleading about the bank’s green credentials because they omitted to mention its financing of “businesses which made significant contributions to carbon dioxide and other greenhouse gas emissions”. This is significant as it is the first time the regulator has banned ads by a bank on grounds of greenwashing.

Concerns over greenwashing have been rising amongst politicians and regulators. The UK’s Competition and Markets Authority is investigating potential greenwashing from three fashion brands. And further afield, regulators in the US and Europe are looking at how to clamp down on greenwashing tactics. Earlier this year asset manager DWS was raided by German police as part of a greenwashing investigation.

With regulators increasingly willing to take tough action on those found to be making unfounded or misleading claims about their green credentials, organisations will need to be much more self-critical and transparent to avoid public criticism and the ensuing reputational damage.

Far more uncertain is the impact on the green agenda from the aforementioned political shenanigans.

On a positive note, the new Prime Minister Rishi Sunak has pledged to uphold the ban on fracking in the UK, reversing the move of his predecessor to lift it.

Sunak has, however, declined an invitation to attend COP27 in Sharm El-sheikh, a move that Labour’s shadow climate change secretary Ed Miliband labelled as “a massive failure of climate leadership”.

During his leadership bid he seemed favourable towards a new, large licensing round for oil and gas permits in the North Sea. And in the summer he argued against solar developments on agricultural land, an issue Defra is due to publish proposals on.

His green record as Chancellor is debatable, with frequent headline-grabbing measures including a £1bn Net-Zero Innovation Fund and the creation of sovereign green savings bonds countered by reported hampering of other green policies such as the Heat and Buildings Strategy.

No 10 also confirmed that the position of environment minister has been demoted, with Graham Stuart reappointed to the role but stripped of his entitlement to attend Cabinet.

Businesses will be watching carefully for further signs of the direction in which the UK’s politicians will take us. As we approach COP27 and the end of the UK’s COP presidency, let’s hope that the new regime will restore some stability not just to the nation’s leadership, but its climate leadership.