The FCA’s Anti-Greenwashing Rule: New Guidance Released Ahead of Implementation in May

The FCA’s new anti-greenwashing rule forms part of a package of measures finalised in November 2023 through the FCA’s Policy Statement on Sustainability Disclosure Requirements and investment labels (PS23/16). We blogged about this at the time (see here), and produced a longer-form client briefing (see here).

To recap, the FCA will introduce: 

• an anti-greenwashing rule for all FCA-authorised firms, which will come into effect from 31 May 2024; 
• four product labels for sustainable investment products (with accompanying disclosures), which can be used from 31 July 2024; 
• naming and marketing requirements for investment products (with accompanying disclosures), with effect from 2 December 2024; 
• ongoing product-level and entity-level disclosures for firms with AUM over £50bn from 2 December 2025; and 
• entity-level disclosure rules for firms with AUM over £5bn from 2 December 2026. 

The anti-greenwashing rule complements existing general regulatory rules (alongside those under the frameworks of the Competition and Markets Authority and the Advertising Standards Authority) and now explicitly requires all FCA-authorised firms to ensure that all sustainability-related claims made about their financial products or services are fair, clear and not misleading and consistent with the sustainability characteristics of the product or service. This general rule will form the foundation for the more specific naming and marketing rules. 

To support the implementation of the anti-greenwashing rule and following a public consultation, the FCA released new Guidance in April setting out the scope of the anti-greenwashing rule and the FCA’s expectations, including by way of examples. 

Scope

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. 

The Guidance explains that the term ‘sustainability’ is not expressly defined, but that ‘sustainability characteristics’ should be interpreted as meaning environmental or social characteristics.

Expectations and examples

The Guidance further explains that sustainability references should be:

• Correct and capable of being substantiated: for example, if a firm makes a promotional statement that a fund is ‘fossil fuel free’, but in actual fact the terms and conditions explain that the fund includes investments in companies involved in the production, selling, and distribution of fossil fuels below a certain revenue threshold, the statement is not factually correct and not capable of being substantiated, which renders the statement misleading.
• Clear and presented in a way that can be understood: for example, a firm includes an image of a rainforest at the top of its webpage about its savings accounts, with an overlay of text that reads ‘Sustainable Savings’. The webpage includes a ‘Green Savings Account’ (which has sustainability characteristics as it uses deposits to lend to companies to fund sustainable projects) along with a list of other savings accounts, that do not have sustainability characteristics. The header image and text are potentially misleading, as it gives the impression that more of the savings accounts offered use deposits to fund sustainable projects than in reality. In this case, the FCA expects the image and text to be used only for the ‘Green Savings Account’, rather than all savings accounts. 
• Complete – they should not omit or hide important information and should be based on the full life cycle of the product or service: an example of good practice here is a fund manager, when advertising its asset selection process as having a sustainability focus, naming the framework it uses to assess potential investments within its marketing materials, explaining how it assesses compliance with the framework, and including independently-verified routine reporting of clear, measurable and ambitious performance metrics and targets. This helps to provide a representative picture of the service offered.
• Comparisons to other products or services are fair and meaningful: for example, a firm claims that by buying their investment bond, investors will ‘reduce emissions’ more than through buying other bonds on the market. However, it is not made clear that the comparison only refers to Scope 1 emissions (as opposed to all emissions – Scopes 1, 2 and 3), and was based on a limited sample at a particular date – this has the potential to mislead the firm’s audience, and give the wrong impression that the firm’s product is superior to others available. The FCA therefore expects that 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. 

The FCA notes that it is undertaking wider work (including as part of the Transition Finance Market Review) to understand the greenwashing challenges faced by the UK financial sector in providing transition finance to support - in particular high emitting - companies with reducing their carbon emissions and meeting net zero targets. 

The Guidance provides helpful assistance to firms preparing to comply with the anti-greenwashing rule, a concept so far perceived by the industry as rather vague. It sets out the FCA’s expectations in this area, with the examples in particular providing colour as to where, and under what circumstances, the FCA might look to enforce the new rule. Firms should review the Guidance, taking particular note of the examples, and consider whether any of their current sustainability-related claims risk falling foul of the Guidance, and what (if any) changes might need to be introduced ahead of 31 May.