UK lawmakers clash with fund industry over plan to tackle greenwashing

LONDON, Feb 22 (Reuters) - Britain's financial regulator should rethink its plan to tackle greenwashing because it risks disrupting markets and could damage faith in sustainable investing, the head of an investment managers' industry group said on Wednesday.

The Financial Conduct Authority's (FCA) sustainability disclosure requirements (SDR) are aimed at protecting consumers from fund managers exaggerating their climate credentials and arming savers with better information about where their money goes.

Chris Cummings, chief executive of The Investment Association, told a British parliamentary hearing that the requirements would mean too few 'sustainable' funds - he estimated 60%-70% - would make the cut, including all passively managed products.

"These rules go well beyond climate change and start to look at areas like social and good governance ... standards are not there yet," he told the British parliament's Treasury Select Committee.

"My great worry behind all of this is we are going to have an industry where we have seen over 91 billion pounds invested so far, where actually consumers will feel they somehow have been mislead just because the regulator said today this is what good looks like, but tomorrow only a third of that, and say to industry you have got 12 months to change."

Lawmakers on the committee examining the FCA's proposals put Cummings on the defensive over his criticism of the plan.

"If you want to drive investment into properly regulated funds that aren't lying about their green credentials, surely you have to have standards that allow that to happen?" Angela Eagle, a lawmaker from the opposition Labour Party, told Cummings. She said such standards would mean by definition that not all current funds would qualify as sustainable.

The FCA last month closed a public consultation on SDR. It said recently that one third of funds in Britain currently marketed as sustainable would no longer qualify for the label and another third would choose not to use it.

Kate Levick, associate director of sustainable finance at think tank E3G, told the hearing the FCA's plan "would remove the significant amount of greenwashing currently in the market". (Reporting by Tommy Reggiori Wilkes and Huw Jones Editing by Mark Potter)