The Association of Investment Companies has called on the FCA to set demanding standards for funds that call themselves sustainable or make ESG claims.

The AIC said the move would help prevent 'greenwashing' - bogus claims about the green credentials of investments.

It said that too many ESG claims do not stand up to scrutiny and this threatens to undermine investors’ confidence in responsible investing.

The AIC call came in response to the FCA’s discussion paper ‘Sustainability disclosure requirements and investment labels’.

The AIC said product labels should also distinguish between products that focus on environmental sustainability and those targeting social change.

Richard Stone, chief executive of the AIC, said: “People buying investments that are labelled ESG or sustainable expect them to make a real difference, rather than being a marketing opportunity for product providers.

“Unfortunately, we are still in a situation where too many ESG claims do not stand up to scrutiny, as the FCA has already highlighted. This threatens to undermine investors’ confidence in ESG investing as well as getting in the way of positive change.

“We believe the bar for investment products to call themselves sustainable should be set high enough to clearly differentiate them from other products. Product labels should be clear, and disclosures should be short and jargon-free. It’s also important that investors know whether those products are focusing on environmental sustainability, social issues, or both.” 

The investment professional body recommended that the same standards are applied to all retail investment products that fall under the PRIIPs and UCITS regimes, including investment companies.

It said that investment companies should be held to the same standards as other investment products, so that investors choosing an investment for its sustainability credentials can compare like with like and “have confidence that the label is meaningful”.