The FCA’s anti-greenwashing rule, which has been introduced into the Environmental, Social and Governance Sourcebook section of the FCA Handbook, clarifies to FCA-authorised firms that sustainability-related claims about their products and services must be consistent with the actual sustainability characteristics of the product or service in question, as well as fair, clear and not misleading. All authorised firms need to meet the anti-greenwashing rule from 31 May 2024 when communicating with clients in the UK in relation to a product or service or providing information on a financial promotion.

The FCA has brought guidance into force at the same time to help firms understand and implement the rule (“Finalised non-handbook guidance on the Anti-Greenwashing Rule (FG/24/3)”).

The guidance advises that to comply with the anti-greenwashing rule, sustainability references should be:

  1. Accurate and verifiable: Claims must be factual, not misleading, and capable of being substantiated at the time they are made. They should not exaggerate or overstate positive environmental or social impacts.
  2. Clear and understandable: Firms should ensure that the intended audience can comprehend the terms used. They must avoid using terms that could imply false sustainability characteristics and consider the overall impression created by the visual presentation of claims. The information provided should be useful for the intended audience.
  3. Comprehensive: Firms should not omit or hide significant information and should consider the entire life cycle of the product or service. Claims must present a balanced view, not just highlight positive sustainability impacts while ignoring negative ones.
  4. Fair and meaningful comparisons: when comparing products or services, firms must clearly explain what is being compared and how the comparisons are made. Comparisons should be between similar items and should provide evidence to substantiate any claims made. Firms must be cautious when stating that a feature has sustainability characteristics if it merely meets a minimum standard of legal compliance.

The guidance includes several illustrative examples which in-scope firms should review to ensure their communications comply with the anti-greenwashing rule. The rule applies to communications and financial promotions to both retail and wholesale clients, but there is a degree of proportionality included so that the information firms provide, and the way they present the information, can be adapted depending on whether the recipient is a professional or a retail client.

The objectives behind the introduction of the rule and guidance include:

  • Protecting consumers against greenwashing so that they can make informed decisions in line with their sustainability preferences (the FCA’s recent survey shows 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); and
  • Creating a level playing field for firms in a rapidly evolving market.

In many ways the rule and guidance do not add anything radically new to pre-existing rules that require FCA-authorised firms to ensure that the information they communicate is fair, clear and not misleading (including the Principles for Business (PRIN) and the Conduct of Business Sourcebook (COBS). However, it is a welcome development that regulators will be able to point to an express rule regarding anti-greenwashing when considering enforcement action, and likely an indication that the FCA will be treating sustainability claims with particular scrutiny (in line with its “Sustainability Disclosure Requirements (SDR) and investment labels policy statement (PS23/16)”).

The substance of the rule and guidance are also aligned with that of other regulators, such as the Competition and Markets Authority, the Advertising Standards Authority and Committee on Advertising Practice. The CAP code states that the basis of environmental claims must be clear (11.1) and ASA rulings (such as on Deutsche Lufthansa AG in March 2023 and Etihad Airways in April 2023) have shown this entails a high level of required substantiation.

Bates Wells specialise in assisting with these matters. We can review draft communications with a critical but helpful eye and offer clear and concise commercial and strategic advice to support businesses to make verifiable green claims with confidence.