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The UK ‘Greenwashing’ Briefing Series: PART III

By Rodrigo Zepeda, CEO, Storm-7 Consulting

[Part III of a four part blog series] 

It was previously seen that the issue of greenwashing in consumer and capital markets was identified more than a decade ago. In theory, if green and environmental issues in finance were a top priority, the United Kingdom (UK) Government and UK regulatory authorities should have been analysing, assessing, and evaluating the risks of greenwashing in banking, financial services, and investments many, many years ago. But they were not.

Instead, in contrast to more advanced developments in the European Union (EU) and the United States (US), the issue of greenwashing only seems to have been more widely raised in the last two or three years by the UK Government and the Financial Conduct Authority (FCA). The Financial Services and Markets Act 2000 (c.8) (FSMA) received Royal assent on 14 June 2000, and it was supposed to usher in a modern regulatory framework for banking and financial services in the UK.

Yet, Christopher Woodward, Executive Director of Strategy and Competition at the FCA noted the words ‘climate change’ and ‘green’ did not explicitly appear in any of the 321 pages of this legislation that created the FCA (Woodward 2018). Neither are the words ‘green’, ‘climate change’, or ‘greenwashing’ mentioned in any of the financial services modernisation legislation set out in ‘MiFID I’ (Directive 2004/39/EC), ‘MiFID II’ (Directive 2014/65/EU), or ‘MiFIR’ (Regulation (EU) No 600/2014) applicable within the UK.

In fact, in the FCA’s ‘Climate Change and Green Finance’ Discussion Paper (DP18/8) (22 pages) published in October 2018, the issue of greenwashing was only mentioned once briefly in passing (FCA 2018p. 10, para 4.7). It was stated there were no universally agreed common, minimum standards and guiding principles for measuring the impact and performance of green finance products (FCA 2018, p.10, para. 4.7). The FCA acknowledged these could help to ensure investors understood what they were buying and could prevent misleading greenwashing of financial products and services (FCA 2018, p.10, para. 4.7). That was it.

Even in one of HM Government’s most recent publications published in October 2021, namely ‘Greening Finance: A Roadmap to Sustainable Investing’ (48 pages), the issue of greenwashing is only sporadically mentioned throughout. Apart from a small box defining greenwashing on page 8, there are only very brief one sentence references on pages 3, 5, 21, and 41.   

This essentially means that not once in an entire decade (2010-2020) have the UK Government or UK regulatory authorities published any type of detailed (i.e., 50-100 pages or more) whitepaper, briefing paper, discussion paper, or research paper that discusses the issues of greenwashing in finance in depth. Not once. In reality, it seems that it was only last year in 2021 when the importance of the issue of greenwashing in finance was acknowledged, and some form of action was proposed.

The House of Commons Treasury Committee report ‘Net Zero and the Future of Green Finance: Responses to the Committee’s Thirteenth Report of Session 2019-21’ (27 pages) was published on 15 July 2021 (Net Zero Report 2021). A conclusion reached by the report was that:

The financial services industry broadly accepts that ‘greenwashing’ is detrimental to good consumer outcomes and to the achievement of the net zero goal. The Treasury must work with the FCA to ensure that the regulator has the appropriate remit, powers and priorities, and uses its powers, to prevent ‘greenwashing’ of financial products available to consumers.” (Net Zero Report 2021, p. 21).

To this end, the remit to tackle greenwashing and the labelling of financial products was set out as being:

(1) for HM Treasury to work with the FCA to ensure it has the appropriate remit, powers, and priorities, and uses its powers, to prevent greenwashing of financial products made available to consumers;

(2) for HM Treasury and the FCA to consult on the merits of making climate or carbon labels for consumer financial products mandatory (to encourage innovation); and

(3) for the FCA to consult on how best to make such labels readily and widely understood (Net Zero Report 2021, p.5).

The report noted that clear standards for green investments were essential to maintain trust in the financial markets, and for mobilising the finance required to achieve the net zero goal (i.e., decarbonisation of the UK economy to net zero by 2050) (Net Zero Report 2021, p. 21). It further observed that the UK Chancellor had announced a UK green finance taxonomy which would provide firms and investors with “a common science-backed definition for environmentally sustainable economic activities”, which “will reduce greenwashing and avoid underestimating investment in the transition” (Net Zero Report 2021, p. 21).

According to this report, with the implementation of a new UK green finance taxonomy, greenwashing in finance will be completely addressed and reduced.

It is as if the UK Government and UK regulatory authorities seem completely intent on repeating the same extremely costly mistakes again and again. If a set of standards is all that is required, why is it that the public and retail finance consumers in the UK have been bombarded with wave after wave of mis-selling scandals by banks and financial services firms? Weren’t these banks and financial services firms also required to implement and adhere to regulatory and consumer protection rules? Weren't all the mis-selling scandals covered by standards and rules that were supposed to have been adhered to?

For example, the mis-selling of endowment mortgages; the mis-selling of billions of pounds of pension products; the mis-selling of billions of payment protection insurance (PPI); the mis-selling of precipice bonds; the widescale mis-selling of complex derivatives and interest-rate swaps; the mis-selling of packaged bank accounts; and the rise of mortgage mis-selling claims. Not to mention the sub-prime crisis which resulted in a global financial meltdown, that was precipitated by the greed of banks and financial services firms seeking to package and sell complex financial products to what they deemed to be the stupid and uneducated public masses.

Climate change, green and sustainable finance, and greenwashing are all issues of paramount importance that significantly affect all members of the British public. I believe they are issues which every British citizen should be actively engaged and involved with. What is more, given the unprecedented massive scale of financial mis-selling scandals in the UK, I believe the UK Government should be actively engaging with British citizens and potential financial retail consumers throughout the UK as much as legitimately possible. They should be actively participating in discussions regarding greenwashing and financial investments without a shadow of a doubt.

Yet, this does not seem to be happening.

Take a look at the composition of the FCA’s ‘Climate Financial Risk Forum’ (CFRF) which was set up specifically to discuss and manage climate-related risks. Out of the 20 CFRF members chosen by the FCA, a total of 90% (18/20) are financial services firms (asset managers (n=7); banks (n=5); insurers (n=5); other (n=3) (CFRF 2022). In fact, there are only two organisations, the Green Finance Institute and the UK Centre for Greening Finance and Investment, that are not banks, financial services firms, or insurers.

How can this possibly provide what the FCA labels as “diverse representation”? This seems to better reflect corporate cronyism on the part of the FCA. For instance, how are members of the public in the UK directly represented? How are retail consumer groups represented? How are small and medium-sized enterprises (SMEs) represented? How are green rights groups represented? How are human rights groups represented? How are non-governmental organisations (NGOs) represented? How are the interests of minorities represented? How are the interests of young Gen Zers represented?

There are basically no public views sufficiently, adequately, or proportionately represented in the CFRF.

So, essentially, what we have is a forum that is facilitated and shielded by a public sector body (the FCA), that will drive the agenda for greenwashing of financial products to the UK public, except, that UK public views will not really be heard by the forum. The actions, practices, or recommendations made by the CFRF will be primarily driven by the entrenched interests of the banks, asset managers, and insurers. Of course, the CFRF impliedly promises the British public that there are no risks whatsoever of potential mis-selling practices arising in the future due to greenwashing, despite the masses of financial mis-selling claims that are still outstanding.

Remember, greenwashing in finance potentially involves even more complex scenarios and investments than those involved in many of the previous financial mis-selling scandals.

Tackling greenwashing requires establishing a highly transparent, understandable, and most of all harmonised greenwashing taxonomy. What the UK Government is currently seeking to do is develop a green taxonomy that may conflict with green taxonomies developed by the EU, the US, and globally. Instead of actively seeking greater participation of the British public and key green stakeholders, it has shunned them in favour of entrenched interests of banks, asset managers, and insurers.

This is despite the constant stream of financial mis-selling scandals that these very firms have catalysed in the UK. At the same time, the UK Government and the FCA seem to be completely oblivious to the key areas that need to be addressed. For example, identifying what the key issues, trends, risks, and problems are for greenwashing in finance across different sectors such as banking, asset management, retail banking, investment banking, hedge funds, mutual funds, and investments made by institutional investors and insurance firms.

Identifying how the UK Government can help to catalyse or facilitate much wider and more voluminous development of empirical and theoretical greenwashing in finance research? Asking how can greenwashing rules be efficiently and cost-effectively integrated in existing regulatory frameworks, such as MiFID II product governance and MiFID II suitability and appropriateness processes? Asking how can existing retail consumer information disclosure processes, such as ‘Key Information Documents’ (KIDs) under ‘PRIIPs’ (packaged retail and insurance-based investment products) (Regulation (EU) No. 1286/2014), be amended to cover a range of different green investment scenarios?

Questioning how greenwashing practices may potentially impact new technological channels and developments, such as peer-to-peer (P2P) and financial technology (FinTech) lending and investments, or crowdfunding investments? And asking how can highly extensive and costly industry lessons learnt from implementation of new regulatory technology (RegTech) reporting solutions (e.g., anti-money laundering (AML) reporting, MiFID II/MiFIR reporting, automatic exchange of information (AEOI) reporting), be used to develop new green and climate change investing and reporting solutions? For example, green software solutions that can access multiple internal firm data sources and produce different types of green investment reports based on different green taxonomies, e.g., UK, EU, US greenwashing taxonomies.



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Rodrigo Zepeda

Rodrigo Zepeda


Storm-7 Consulting Limited

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25 Oct 2019



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