The latest proposal from the Financial Conduct Authority (FCA) aims to clamp down on greenwashing with new measures, including investment product sustainability labels and restrictions on how green terms like ‘ESG, ‘green’ or ‘sustainable’ can be used.

Greenwashing is an unsubstantiated claim that a product or service is environmentally friendly or has a greater positive impact than it does in reality.

The FCA proposes introducing sustainable investment product labels that will give consumers the confidence to choose the right products for them. There will be three categories – including one for products improving their sustainability over time – underpinned by objective criteria.

As part of this, it is introducing restrictions on how certain sustainable phrases can be used. To help avoid misleading marketing of products, TheFCA will require companies to provide consumer-facing disclosures to help them understand the key sustainability-related features of an investment product.

As well as more detailed disclosures, that are suitable for institutional investors or retail investors that want to know more.

This means that those in the housing and mortgage sectors offering green initiatives must meet specific criteria to ensure that their marketing and consumer-facing disclosures are valid for customers.

FCA director of environment social and governance Saha Sadan says: “Greenwashing misleads consumers and erodes trust in all environmental, social, and governance (ESG) products. Consumers must be confident when products claim to be more sustainable that they actually are. Our proposed rules will help consumers and firms build trust in this sector. This supports investment in solutions to some of the world’s biggest ESG challenges. This places the UK at the forefront of sustainable investment internationally. We are raising the bar by setting robust regulatory standards to protect consumers in line with our wider FCA strategy.”

Why is our sector’s role in the route to net zero so important?

When looking at the problem of a greener future, many people point to cows or cars, when in fact, the housing market is responsible, according to the Energy Savings Trust, for 21% of carbon emissions in the UK.

This huge part that we play means that we urgently need to look at how we can go green and do so quickly to meet the priorities and goals set at COP26.

We can no longer ignore the problems that have been bubbling underneath, and it’s time to evolve green housing and green finance to make them more appealing, accessible and realistic to our customers.

In fact, many major providers are already on a green-motivated mission. Lloyds managing director of intermediaries Esther Dijkstra said to us last year: “Our main goal is to go green. This may be helped in the coming years with a rise in initiatives for customers to make greener choices, such as the government’s renewable heat incentive for homeowners to help reduce our carbon emissions.”

The future will likely see a rise in eco-conscious buyers as more customers want to secure a green mortgage and greener finances. But we need to ensure that we have those opportunities for the customers and that these are balanced with the FCA’s latest requirements.

What the FCA proposals mean for the housing and mortgage industries

It’s encouraging to see the FCA propose new rules to tackle greenwashing across financial services, as it can be used as a driver towards stronger and more sustainable mortgage offerings.

Although, organically with a greener future in mind, the mortgage market has already taken some positive strides towards a greener future and overcoming a national and international challenge. It’s vital that the latest measures from the FCA continue to propel change and the right outcome for customers without revolving around just profits.

The customer has to come first, and they can’t be let down or disengaged from the importance of what we are all trying to achieve. For mortgages to play their part, meet the FCA regulations and be effective for customers, mortgage providers must continue to put the customer first. This can be seen in the offering of better rates compared to other mortgage products.

Whilst there is, of course, a need to regulate claims, and it’s vital that businesses can back up their offerings, it’s essential that the FCAs policy doesn’t over-regulate and stunt all-important innovation. The sector’s innovative ideas can lead to the growth of a green housing market and allow us all to move towards a net zero future, so it’s vital that the balance is right.

James Tucker is chief executive of Twenty7Tec