EU makes a step to boost consumer confidence when investing sustainably

The European Commission today revealed its plans to revise the Sustainable Finance Disclosure Regulation to bring much needed clarity about what can be considered a sustainable investment.

The plans would introduce three categories of green investment products for consumers to choose from: sustainable, transition, and ‘ESG basics’ (Environmental, Social, and Governance).

The sustainable category would need to ensure at least 70% of investments meet clear sustainability objectives, such as Paris Agreement compliance and excluding fossil fuels, which would be progress.

Products with transition objectives, importantly, will be prohibited from investing in new fossil fuel projects. However, investment managers should have to engage with assets in these products to encourage their transition.

The ‘ESG basics’ category – while excluding areas like weapons, tobacco, and coal – crucially does not have to exclude oil investments.

The European legislator needs to reduce the risk of confusing consumers, for whom terms like ‘ESG’ may imply that the fund is in some way contributing to the green transition or sustainability. Indeed, a recent BEUC survey found that, despite strong consumer interest to invest sustainably, misleading or unreliable green claims are discouraging consumers from doing so.

Agustín Reyna, Director General of BEUC, commented: “Consumers increasingly want to be able to invest and save for retirement or other life events in a sustainable way. But many are being discouraged by a jungle of misleading and confusing green claims. That the European Commission intends to bring some order here is positive and the sustainable category will bring much-needed clarity. However, to avoid breaching consumer trust, all categories of sustainable investment should exclude fossil fuel expansion. Consumers want to know that their hard-earned savings are not being misused”.

Read more:

• ‘Sustainable finance: too green to be true?’ – consumer survey