Ensuring integrity in sustainability marketing
Product labelling or naming regimes set rules for how sustainability-related terms can be used in product names and marketing materials. They protect consumers from misleading claims and promote trust.
Why it matters
- Greenwashing mitigation: Labels can only be used if specific criteria relating to sustainability are met.
- Consumer protection: Ensures that sustainability claims reflect the nature of the financial product and therefore not misleading consumers.
- Global consistency: Harmonised labelling supports investment across international borders and regulatory certainty.
Key features
Usually include definitions, requirements and restrictions for using specific terms.
Example
The ESMA Naming Guidelines require strict criteria before a fund name can use sustainability-related terms. For example, to use the term “sustainable”, a fund must commit to investing more than 50% of the portfolio in sustainable investments as defined under the EU Sustainable Finance Disclosure Regulation (SFDR).
RIAA Certification example
The requirement to ensure that responsible investment labels are clear, honest and not misleading is one of eight criteria that comprise the RI Certification Standard. Product providers are required to:
<p class="blockquote small italic">Make honest claims and are appropriately labelled: <br/>
a. are named to accurately reflect the claims pertaining to social, environmental, sustainability and/or ethical outcomes or responsible investment approach applied to the product; and <br/>
b. describe what could be reasonably expected by an investor in terms of the portfolio holdings of the product; and <br/>
c. ensure all claims made about the product are honest and not false or misleading nor include puffery, un-substantiations and unqualified predictions. (P2)<br/><br/>
Have relevant and accessible RI disclosures: <br/>
for products asserting certain sustainability outcomes or claims, publish the product’s social, environmental and/or sustainability performance against benchmarks, goals or targets, at least annually as well as the methodology for measuring the Product’s contribution to social, environmental and/or sustainability outcomes. (P5e)</p>
The Product Labelling Guidance Note includes additional information on these requirements, such as requiring that:
<p class="blockquote small italic">Products with climate-related labels should prominently disclose the proportion of under lying investments that align with their label including an explanation of how that proportion has been measured. This includes the basis for determining what classifies as their label definitions, e.g. data provider classification, taxonomy, or proprietary methodology. </p>
Examples of other frameworks
UK Sustainability Disclosure Requirements (SDR); Global definitions of ESG approaches (GSIA/PRI/CFA Institute); India’s binding regulatory guidance ‘New category of Mutual Fund schemes for ESG Investing and related disclosures by Mutual Funds’, LuxFLAG; Singapore’s binding regulatory guidance ‘Disclosure and Reporting Guidelines for Retail ESG Funds’.
