153. Financial services are innovating to support the transition, and new financial products that are targeted at green or transition activities continue to emerge. But it can be hard to understand which financial products support the transition and which ones are just labelled as such. This lack of clarity can undermine the integrity of capital markets and consumer confidence. Seeking to address this issue, the FCA is consulting on aspects of the proposed Sustainability Disclosure Requirement (SDR) and investment labels to counter greenwashing. This will ensure that capital flows from institutional and retail investors are reoriented to business activities that contribute to net zero.
154. The Government and the FCA should build on this across a wider scope of sustainability-labelled financial products and instruments, extending beyond UK fund products to overseas funds and pension products, supported as necessary by legislation. The Government and the FCA should also consider how the conceptual and practical foundations for the regime can be applied to support the trusted development of wholesale markets for sustainable finance instruments, including sustainability-linked bonds and loans, and other transition-focussed instruments.
155. The risk of greenwashing goes beyond financial instruments. For example, offsets to greenhouse gas emissions are another area linked to the net zero transition where lack of clarity and reliability around terms and labelling undermine the development of a credible market for offsets. Voluntary Carbon Markets are focused on developing credible standards and accreditation methods to address these issues. It is important they do so with rigour to build trust in the offset market and deliver products that do what they say (see Pillar 6).