New rules aimed at tackling the “economy” of investment products have been proposed City regulator.

The rise of “exaggerated, misleading or unsubstantiated” claims about the environmental, social and governance performance of products is damaging consumer confidence and may hinder the transition to a net-zero economy. Office of Financial Control (FCA), said.

The package of new measures includes a requirement for “investment sustainability labels” on products and restrictions on how terms such as “ESG”, “green” and “sustainable development” can be used.

Director of the FCA ESG Sasha Sadan said the rules would “raise the bar” by setting robust regulatory standards that would put the UK “at the forefront of sustainable investment internationally”.

He added: “Greenwashing misleads consumers and undermines confidence in all ESG products.

“Consumers need to be confident that products claim to be sustainable.

It supports investment in solutions to some of the world’s biggest ESG challenges.

“Our proposed rules will help consumers and firms build confidence in the sector.

“It supports investment in solutions to some of the world’s biggest ESG challenges.”

The proposals would introduce three categories of labels for sustainable investment products, including one based on “objective criteria” for the products’ sustainability over time.

Sustainability-related term limits will apply to the naming and marketing of products that do not meet these requirements.

The FCA also proposes a general ‘anti-money laundering rule’ for all regulated firms to rule out false claims.

Other measures would require up-front disclosure of the sustainability features of investment products to retail and institutional investors, including elements that consumers might not expect to be part of the product.

The FCA said such details can often be “hidden” in documents, with “exorbitant” costs associated with finding and understanding the relevant information.

Stricter requirements will also be imposed on investment platforms to make sustainability information more accessible.

The FCA added that it is now stepping up its “supervision” of sustainable finance and improving its enforcement strategy.

This includes a review of how firms responded to a letter sent to fund managers in July 2021 outlining “guidelines for the development, provision and disclosure of sustainable investment products”.

Consultation on the proposals will continue until January, and the new rules are expected to be introduced by June 2023.

The initial focus is on UK funds and portfolio management, but the FCA said it intended to consult on expanding the scope to overseas products at a later date.

The proposals support the Government’s ambitions set out in the Sustainable Investment Roadmap published in October 2021, the FCA added.