Ahead of the anti-greenwashing rule coming into force on May 31, the FCA is supporting industry with guidance to help them meet the standard.

The anti-greenwashing rule is one part of a package of measures set to take effect in 2024. The Sustainability Disclosure Requirements (SDR) and investment labels regime PS23/16 for asset managers was finalised in November 2023 (see Sustainability disclosure and labelling regime announced by FCA).

The FCA is also consulting on a set of proposals for labelling and SDR for portfolio managers. The regulator said these will largely mirror those introduced for asset managers.

UK-based fund managers can use the investment labels from July 31. The naming and marketing rules for UK-based fund managers come into effect from December 2.

“Our good and poor practice anti-greenwashing examples will help firms market their products in the right way.”

Sacha Sadan, Director of Environmental, Social and Governance, FCA

Results from the latest Financial Lives survey show significant consumer interest in sustainable finance, as 81% of adults surveyed would like their investments to do some good as well as provide a financial return. The FCA said that as the demand for sustainable products and services grows, so does the risk of greenwashing.

The new guidance is designed to help firms understand and implement the regulator’s anti‑greenwashing rule. The FCA said the feedback it received from the guidance published in November 2023 was broadly positive and supportive but there were requests for further clarity on its expectations.

The main updates to the guidance are: clarification of the scope of the anti-greenwashing rule; the provision of further examples by the FCA, including good practice examples; and clarification of the interrelation between existing requirements and related guidance.

The FCA said the new guidance is consistent with existing expectations and does not create new obligations for firms.

Rule application

The anti-greenwashing rule in the ESG Sourcebook (ESG 4.3.1R) requires firms to ensure that any reference to the sustainability characteristics of a product or service is: consistent with the sustainability characteristics of the product or service, and is fair, clear and not misleading.

Firms should note the Principles for Businesses (PRIN) will also apply and firms subject to the Consumer Duty will also need to consider its rules.

The anti-greenwashing rule applies when a firm:

• communicates with clients in the UK in relation to a product or service, or
• communicates a financial promotion (or approves a financial promotion for communication) to a person in the UK.

It is worth flagging that the rule applies to all UK-authorized firms irrespective of whether they are subject to the Consumer Duty (ie B2B).

Firms should also note that while the scope of the anti‑greenwashing rule relates to products and services, firms are reminded that the CMA and ASA’s guidance and FCA Principles 6 and 7 or, as relevant, the Consumer Duty (Principle 12 and the rules in PRIN 2A), apply to sustainability‑related claims that a firm may make about itself as a firm.

Clarification of the scope

The FCA said that the effect of the anti‑greenwashing rule in practice means that sustainability should meet the following criteria.

Claims should be correct and capable of being substantiated

• The claims firms make should be factually correct. Claims can also be misleading if they provide conflicting or contradictory information.
• A firm’s products or services should do what they say they do. Claims should be capable of being substantiated at the point in time at which they are made and firms should have the appropriate evidence to support their claims.
• Firms should regularly review their claims and any evidence that supports them. This will ensure the evidence is still relevant for so long as those claims are being communicated (eg, a financial promotion is live).
• Where a firm’s claim makes specific reference to the evidence that supports it, they may want to consider whether it would be helpful to make that evidence publicly available in an easily accessible way.

Claims should be clear and presented in a way that can be understood

• The claims firms make should be transparent and straightforward, and firms should consider whether the meaning of all the terms would be understood by the intended audience. For example, technical language may be difficult to understand.
• Firms should consider whether the information they are providing is useful for the intended audience.
• Firms should also be aware of the overall impression a visual presentation of a claim can create. The images, logos and colours used are an important part of the overall presentation of a claim.
• Firms subject to the Consumer Duty should also ensure they have the necessary information to understand and monitor customer outcomes.

Claims should be complete – they should not omit or hide important information

• Claims should give a representative picture of the product or service. Firms should not omit or hide important information that might influence decision‑making.
• Where claims are only true if certain conditions apply, those should be clearly and prominently stated.
• Claims should not highlight only positive sustainability impacts where this disguises negative impacts.
• Firms should consider the life cycle of a product or service, as appropriate, when making sustainability‑related claims.
• Firms should consider what information is necessary to include for the claim to give a representative picture of the product or service.

Comparisons should be fair and meaningful

• The claims firms make when comparing a product or service, either to one of their previous versions or to a competitors’, should be fair and meaningful.
• Claims comparing the sustainability characteristics of products and services should make clear what is being compared, how a comparison is being made and should compare like with like.
• Firms should be careful when making claims about the extent to which a feature of a product or service has sustainability characteristics when it may simply be meeting a minimum standard of compliance with existing legal requirements.
• Where comparative claims are made, any evidence to substantiate those should cover all products or services compared.

Lucy Blake, Partner and greenwashing legal expert at Jenner & Block’s London office, said: “The FCA’s action is part of a wider trend of UK authorities taking action against greenwashing. The message to financial institutions (and other companies) is clear – the temperature is rising and green statements need to be meticulously substantiated.

“Many companies find themselves walking a tightrope between greenwashing and greenhushing – damned for saying the wrong thing or damned for saying too little. The solution for companies caught in these crosshairs is honesty, transparency and a demonstrable commitment to positive change.”

Sacha Sadan, Director of Environmental, Social and Governance, FCA, said: “‘Confirming the new anti-greenwashing guidance and our proposals to extend the Sustainability Disclosure Requirements and investment labels regime are important milestones that maintain the UK’s place at the forefront of sustainable investment.

“Our good and poor practice anti-greenwashing examples will help firms market their products in the right way. We continue to work closely with the ASA and CMA to address greenwashing.”