Its new Sustainability Disclosure Requirements (SDR) include a new investment labels regime thrashed out after discussions with industry, other regulators and consumer groups.

The regulator’s move is in response to concerns about the estimated $18.4trn (£14.55trn) of ESG-orientated assets now being managed globally.

The FCA hopes the new rules will protect investors by enabling them to make more informed decisions and enhancing the credibility of the sustainable investment market.

The new anti-greenwashing rules will come into effect from 31 May and firms can use the new investment labels from 31 July.

New naming and marketing rules for asset managers come into effect from 2 December 2024.

Research suggested that investors were not confident that sustainability-related claims made about investments were genuine. That was not helped by a lack of consistency when firms use terms, such as 'green', 'ESG' or 'sustainable', the regulator said. Last December almost half of Financial Planners said they were worried about greenwashing, with a third confused by the growing array of ESG regulations.

To tackle the issue, the FCA will introduce:

• an anti-greenwashing rule for all authorised firms to make sure sustainability-related claims are fair, clear and not misleading
• product labels to help investors understand what their money is being used for, based on clear sustainability goals and criteria
• naming and marketing requirements so products cannot be described as having a positive impact on sustainability when they do not

Sacha Sadan, director of environmental, social and governance, FCA, said: “We’re putting in place a simple, easy to understand regime so investors can judge whether funds meet their investment needs – this is a crucial step for consumer protection as sustainable investment grows in popularity.

"By improving trust in the sustainable investment market, the UK will be able to maintain its position at the forefront of sustainable finance and capture the benefits of being a leading international centre of investment.”

The package of measures was tested with more than 15,000 people, the regulator said. It followed the FCA's Financial Lives survey, which highlighted that a significant majority of adults in the UK would like to invest in a way that protects the environment and has a positive social impact.

In addition to the other measures, all sustainable investment products will be required to disclose further information to investors. The disclosures will lead to greater transparency, as investors will have a comprehensive understanding of what exactly is included in their investment.

Gemma Woodward, head of responsible investment at Quilter Cheviot, said: “It is clear that the FCA wants to set a high standard with this regulation. For some, the 70% threshold of assets invested in line with the sustainability objective was seen as too high, but if we are to avoid any greenwashing accusations it has to be a high hurdle to clear.

“The FCA sees the remaining 30% as more than enough headroom to provide liquidity and portfolio management services while remaining aligned to the label. This will need monitoring going forward to allow tweaks should 70% appear too restrictive, especially for those in more defensive strategies where cash and bonds can be harder to classify as sustainable.”

The FCA is also setting up an independent working group for the financial advice sector to work together to build on existing capabilities in sustainable finance, including how the SDR and labels regime supports their role.