• The UK Financial Conduct Authority’s (FCA) anti-greenwashing rule (Rule) will come into effect on 31 May 2024 and applies to all FCA-authorised firms.
• The Rule requires that references made to the sustainability characteristics of a product or service, are (i) consistent with the sustainability characteristics of the product or services and (ii) clear, fair and not misleading.
• The Rule is of broad application, is not limited to firms that engage in sustainable business and applies to communications to both professional and retail clients.
• The FCA has published guidance to help FCA-authorised firms understand the FCA’s expectations under the Rule.

Introduction

With effect from 31 May 2024, the UK Financial Conduct Authority’s (FCA) anti-greenwashing rule will be coming into effect for all communications by UK FCA-authorized firms relating to their products and services that refer to environmental and/or social (sustainable) characteristics. The FCA has just released guidance to assist firms in implementing the rule, which builds on the overarching requirement that communications with customers be fair, clear and not misleading. If firms have not reviewed their in scope communications yet for compliance with the new rules, they should do so now with attention to the latest guidance.

Background

In November 2023, after some delay and extensive industry consultation, the FCA published its Policy Statement on Sustainability Disclosure Requirements (SDR) and investment labels (the Policy Statement)¹. The final rules, as set out in the Policy Statement, include a general anti-greenwashing rule (the Rule), which can be found in FCA’s Environmental, Social and Governance (ESG) Sourcebook (ESG 4.3.1R) and will apply to all FCA-authorised firms from 31 May 2024. The Rule is of broad application and not limited to firms that are engaged in sustainability in-scope business² (i.e. the Rule will apply to all FCA regulated firms making any kind of claims about the sustainability characteristics of any of their products or services). This is regardless of whether or not those products or services have sustainability-related objectives and strategies or are covered by other aspects of the FCA's SDR. The Rule will also apply regardless of the client’s categorisation, i.e., there is no carve out for communications to professional investors.

Following a consultation, the FCA published finalised non‑handbook guidance on the Rule (FG24/3³) at the end of April 2024 (the Guidance). The Guidance is intended to help FCA-authorised firms understand the FCA’s expectations under the Rule. As the anti‑greenwashing rule will come into force on 31 May 2024, the FCA is bringing the Guidance into force at the same time to provide firms with clarity when complying with the Rule.

Tackling greenwashing is a priority for the FCA and the introduction of the Rule will give the FCA an explicit rule on which to challenge firms if the FCA considers the firm is making misleading sustainability‑related claims about their products or services and, if appropriate, take further action.

Scope

The Rule applies in relation to financial products and services which FCA-authorised firms make available for clients in the UK with respect to references to sustainability characteristics (environmental and/or social characteristics) of that product or service. This includes financial promotions that authorised firms communicate or approve for unauthorised persons (including for overseas products and services where the promotion is approved in the UK).

The Rule applies not only where a firm communicates a financial promotion (or approves a financial promotion for communication) to a person in the UK, but also more generally where it communicates with clients in the UK in relation to a product or service. The FCA notes that sustainability-related references can be present in, but are not limited to, statements, assertions, strategies, targets, policies, information, and images. The requirement is that where a firm makes reference to the sustainability characteristics of a product or service, it must ensure that the content is (i) consistent with the sustainability characteristics of the product or services and (ii) is clear, fair and not misleading.

The Guidance

The Guidance is intended to help firms that make sustainability claims about products and services better understand the FCA’s expectations under the Rule. The Rule is intended to complement the various requirements and guidance in the FCA handbook that impose the obligation to be, or clarify the meaning of, clear, fair and not misleading (see e.g. Principles for Businesses (PRIN) and the Conduct of Business Sourcebook (COBS).⁴

The Guidance is consistent with existing expectations and does not create new obligations for firms. In addition, the FCA is aware that the nature of firms’ businesses differ and so will their sustainability‑related claims, and acknowledges that firms may consider the Guidance as appropriate.

In summary, the Guidance expects sustainability references should be:

• Correct and capable of being substantiated - a firm’s products or services should do what they say they do. Firms should think carefully about whether they have the appropriate evidence to support their claims. Firms should regularly review their claims and any evidence that supports them, to ensure the evidence is still relevant for so long as those claims are being communicated (e.g., a financial promotion is live). Firms should also ensure that their claims remain compliant with the Rule on an ongoing basis.
• Clear and presented in a way that can be understood - any claims firms make should be transparent and straightforward. Firms should consider whether the meaning of all the terms would be understood by the intended audience. The images, logos and colours used are an important part of the overall presentation of a claim. Firms should consider how such images, logos and colours together may be perceived by the audience when presented alongside other sustainability characteristics of a product or service.⁵ Firms subject to the FCA’s Consumer Duty should test their communications where appropriate and ensure they have the necessary information to understand and monitor customer outcomes.
• Complete - they should not omit or hide important information and should consider the full life cycle of the product or service. Claims should be presented in a balanced way and not highlight only positive sustainability impacts where this disguises negative impacts or focus solely on a product or service’s positive sustainability characteristics, where other aspects may have a negative impact on sustainability. Limitations of any data relied on in making the claim should be disclosed. Firms should also consider whether information about the firm itself may be considered part of the ‘representative picture’ of a product or service. It is important that those claims meet the relevant rules and expectations so that the overall picture is fair, clear and not misleading.
• Comparisons to other products or services are 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 minimum legal requirements.

The Guidance also provides examples demonstrating good and bad approaches to each of the points above.

Conclusion

Although the Rule does not introduce new obligations, FCA-authorised firms will need to ensure that any communication relating to the sustainability characteristics of the product or service is fair, clear and not misleading. Firms should also bear in mind that they should regularly review their sustainability-related claims and any evidence that supports them, to ensure the evidence is still relevant for so long as those claims are being communicated (e.g., a financial promotion is live). Firms should ensure that they are ready for the 31 May 2024 go-live.

1. PS 23/16 is available here.
2. “sustainability in-scope business” is defined in the ESG Handbook as the activities of managing a UK UCITS and managing an AIF which is a UK AIF (as set out in more detail in ESG 3.1.2R).
3. The Guidance is available here.
4. For example, the Conduct of Business Sourcebook (COBS) 4.2 adds further prescription around financial promotions for investments.
5. The Guidance does not extend to the use of images, logos, and colours in a context not intended to refer to, or describe, the sustainability characteristics of a product or service (although other rules may apply).