The author of this article argues that most wealth managers lack the necessary tools to do the job of staying on the right side of laws introduced to squash greenwashing.

An area of concern for advocates – and critics – of ESG investing has been the practice of “greenwashing” – making investments seem greener than they really are. If this isn’t stopped, it will foster more cynicism in a financial industry that must retain trust. Regulators such as the UK’s Financial Conduct Authority have set out steps to ensure that such behaviour comes to an end. 

To discuss the situation is Rachael Rowe, RVP for financial services at Seismic, a sales enablement business founded in California. The editors are pleased to share these insights; the usual editorial disclaimers apply to views of outside contributors. Email tom.burroughes@wealthbriefing.com

In June, new anti-greenwashing regulations came into play in the UK pushing wealth managers to rethink how they reference sustainability claims in all communications with clients. As part of the FCA’s Sustainability Disclosure Requirements (SDR), they will have additional obligations to pass on consumer-facing disclosures and sustainability labelling information to their clients.

This shift requires wealth managers to meet and maintain compliance across the business by providing clients with accurate information about sustainably earmarked funds. 

However, most wealth managers lack the right tools for the job. Here’s why modern enablement software is set to become indispensable for wealth managers.

Anti-greenwashing regulations explained
The new regulations, implemented by the FCA throughout 2024, aim to prevent misleading sustainability claims in the financial sector. The core rule requires FCA-authorised firms to be clear and truthful about their products' environmental and social aspects.

On top of this, additional measures – such as standardised labels and marketing rules – will be phased in later this year to increase transparency and consumer trust in sustainable investment options.

The idea is likely to pressure the financial industry to take sustainability more seriously and, consequently, pressure the carbon-offsetting industry to be more transparent and accountable. Many companies involved in carbon offsetting, whether as sellers or buyers, have faced criticism for the effectiveness and credibility of their offsetting practices. The issues range from overvalued or ineffective projects to potential greenwashing and misleading claims about emissions reductions.

The challenges
As is usually the case with new rules, there will be new challenges. Regulators will be keeping a closer eye on wealth managers' interactions with clients, ensuring that their recommendations and communication regarding environmental impact are accurate and not misleading. 

This will require more precise language and avoiding unsubstantiated claims about sustainability, not just from the compliance team but from everyone – especially revenue and marketing. Additionally, wealth managers will need to delve deeper into the environmental credentials of investment products before suggesting them to clients.

This might involve closer collaboration with asset managers and potentially using new data sources to assess ESG factors. Finally, the regulatory landscape is still evolving, so wealth managers must stay updated and adapt their practices accordingly.

Without the right tools and processes, it means a lot more work.

The opportunities
However, the regulations also present opportunities. ESG is rising in popularity, and the industry is increasingly focused on sustainable investments. In other words, adhering to the new regulations is an opportunity to build stronger relationships with clients.

In addition, wealth managers who can demonstrate expertise in navigating sustainable investing can position themselves as leaders in this growing market segment. 

There is also a potential benefit for investment performance, as studies suggest that companies with strong ESG practices may outperform in the long run. By focusing on sustainable investments, wealth managers may be able to deliver competitive returns for their clients.

However, solving the challenges and taking advantage of the opportunities will be extremely time-consuming unless wealth managers use the right tools.

Why modern enablement software will be key
Enablement software is a platform that equips users with the skills, content, tools, and insights to grow and win. With the introduction of AI in most modern versions, it’s quickly becoming an invaluable tool for compliance, training, content, and reporting. 

Not every vendor will offer the same features, so it’s important to do proper research before choosing a partner. However, here are some ways in which many modern enablement tools can assist with the new anti-greenwashing regulations:

-- Regulatory compliance: enablement software can be programmed to stay up-to-date with the latest anti-greenwashing regulations, provide real-time guidance, ensure knowledge transfer across the firm, and highlight areas of potential non-compliance within the firm’s communications.

-- Data aggregation and reporting: wealth managers can use data aggregation to collate ESG (and other) features of their products to ensure correct and updated credentials; to ensure that the right message is in the correct content to positively position the product towards the client’s needs; and by tagging and surfacing the right offerings at the right time, the client has a full overview of relevant products.

-- Client communication and documentation: The software can assist wealth managers in drafting compliant communication materials that avoid misleading or unsubstantiated green claims. It can also help ensure that all client communications are properly documented to meet regulatory requirements.

-- Training and coaching: some enablement software can even create personalised training programmes to ensure that employees are always up-to-speed and on message. Depending on the vendor, these typically facilitate many different forms of learning, from continuous to peer-to-peer learning, decentralised learning, democratised learning, and AI-enabled learning.

Conclusion
Greenwashing has been a significant problem for a long time, and the FCA recognises this. With strict new regulations and ESG investments rising in popularity, the pressure on wealth managers to achieve and communicate accurate, measurable impact with all things sustainable is greater than ever. 

Those who embrace these changes can build trust, position themselves as sustainable investment leaders, and potentially deliver strong returns. However, it is likely that it will take an unsustainable amount of time and effort without smarter tools.

As a result, modern enablement software is set to become a critical component of a wealth manager’s toolbox. Ideally suited to the task, it can help save a tremendous amount of time and provide far more accurate information to clients and the FCA, becoming a key differentiator for those seeking to thrive in the era of sustainable finance.