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Citing growing concerns about greenwashing, the U.K.’s Financial Conduct Authority (FCA) issued new guidance to asset managers on ensuring their environmental, social and governance (ESG) funds meet investors’ needs.

In a letter to fund industry executives, the regulator set out its expectations for the “design, delivery and disclosure” of sustainable investment funds in a series of guiding principles.

The FCA said that it receives a “high volume” of registration applications for sustainable funds, but that “many of these applications are poor-quality and fall below our expectations.”

For instance, the regulator said it has seen proposed funds with an ESG-related name but little ESG content. There are also proposed funds that claim to invest to achieve a “positive environmental impact” but actually only invest in companies with low carbon emissions and don’t disclose how a positive impact would be monitored.

“In general, fund applications in this area often do not contain sufficient, clear information explaining their chosen strategy and how this relates to the assets selected for the fund,” the letter said.

This kind of poor product design and/or disclosure risks undermining investors’ trust and deterring investors from this segment of the market, the FCA warned.

“This in turn could result in a lack of effective competition between the firms providing ESG or sustainable investment funds,” it said.

“As investor appetite for these investment funds grows, we expect these concerns also to grow,” it added.

To help fund companies comply with the rules in this area, the FCA issued a set of principles to ensure that “any ESG-related claims are clear and not misleading … so that consumers can make informed choices.”

This, in turn, should improve the market for ESG products and foster greater investor trust in these products, the FCA said.

At the same time, the regulator is consulting on the new disclosure rules for asset managers that align with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD).