Although upcoming rules on sustainable investment product labeling and disclosure could put the U.K. ahead of Europein combating greenwashing, they may not makes things clearer for institutional investors, based on reactions submitted to the Financial Conduct Authority.

On Wednesday, the last day for commenting on the FCA’s Sustainability Disclosure Requirements and investment labels proposed in October, financial groups and experts generally praised the regulator’s approach as setting a high bar for the labeling of funds marketed as green and disclosure by investment managers.

For pension funds and other institutional investors, the rules “could make it harder for institutional investors to assess the robustness of ‘sustainable/ESG’ products,” said Edina Molnar, vice president for sustainable investment at consultant Redington, in an emailed statement.

As currently proposed by the FCA, the rules “would allow firms to market certain products as sustainable to institutional investors but not to retail clients. We believe that this divergence would introduce significant complexity,” Ms. Molnar said.

Still, “with the right parameters and implementation, the proposals could help to combat industry greenwashing,” she said.

James Alexander, chief executive of the U.K. Sustainable Investment and Finance Association, said in an emailed statement that the FCA proposal “marks an important milestone in advancing the U.K.’s objective to be a global leader in the fast-evolving sustainable investing market.”

In its comment letter to the FCA, UKSIF, whose members represent a collective £19 trillion ($23.21 trillion) in assets, acknowledged that greenwashing “has damaged trust among many retail savers and institutional investors,” and the need to “build much greater confidence” in sustainable investments.

The FCA’s proposed disclosure framework for investment firms could also help ease their reporting burden “and better inform firms’ investment and capital allocation decisions in the economy,” the UKSIF comment letter said.

Yet the timeframe for that disclosure “could be challenging,” UKSIF said, and there are “real risks” that U.K.-based asset managers and funds could experience “the same, serious sequencing issues of the EU’s Sustainable Finance Disclosure Regulation,” which include an “unclear definition” of sustainable investment.

UKSIF also called on FCA officials to revise how sustainability labels would apply across asset classes other than equities and how fund of funds are treated, among other concerns.

Greater ESG disclosure by investment managers and clearer labeling of ESG products “is increasingly a core investment theme for a growing number of investors. A broader level of ESG disclosure will become more imperative to maximize transparency and empower investor success,” Morningstar officials Andy Pettit, director of policy research, and Arthur Carabia, director of ESG policy research, said in a separate statement supporting the FCA’s goal to “set a high bar.”

And while the FCA rules, once finalized, will be voluntary, “we see these as becoming de facto for all investment managers in future in order to keep pace with the dynamic environment,” said Cadi Thomas, head of ESG research at pension consultant Isio. “The new rules are likely to have a large impact on the sustainable investment landscape in the UK,” Ms. Thomas said in an emailed statement.

The FCA said in October that it intends to finalize the rules before the second half of 2023.

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