‘ESG inflation’ running rampant, FCA director warns
The ESG chief of the UK’s top financial watchdog said that “ESG inflation” was running rampant today as the regulator looks to clamp down on the use of the label in investment data and ratings.
Speaking at the TISA Big Picture conference, Sacha Sadan – who took over as Director of Environment Social and Governance at the Financial Conduct Authority (FCA) last April – said that the risk of greenwashing was on the rise as the label shifted into mainstream usage at financial institutions.
“ESG has become a massive industry, so I’m pleased about that – I genuinely think it’s mainstream,” he said. “But of course, mainstream means that everyone who used to have a go at me now has ESG in their title.
“ESG inflation is running higher than other types of inflation,” he joked.
Sadan said that while he had no issue with ESG ratings, they could be “confusing to the consumer”. The FCA was now looking to “create good products” so investments could be “fit for the future”, he said.
Sadan’s comments come after the watchdog yesterday announced it would throw its weight behind regulating the sector, with plans to bring the use of data and ratings within its remit.
The regulator has been consulting with the sector in the past months and said it backed proposals put forward by government to create a regulatory framework for ESG ratings and providers.
“We see a clear rationale for regulatory oversight of certain ESG data and rating providers – and for a globally consistent regulatory approach informed by the recommendations on ESG data and ratings developed by the International Organization of Securities Commission in 2021,” the FCA said.