The FCA’s Anti-Greenwashing Rule: A Step Toward Sustainable Integrity

What is “Greenwashing” and why is it an issue?

Globally, there is a growing demand for sustainable products and services both within and outside the Financial Services industry. To capitalise on this increase in demand, investment firms have been developing more sustainable investment products and services. Greenwashing occurs when firms increasingly make sustainability claims about their products and services and use “green” and “eco-friendly” marketing imagery for them, which may be exaggerated, misleading, and unsubstantiated, and ultimately cannot not be considered sustainable. Greenwashing has become a significant problem as the fabrication of the sustainability claims are misleading customers, manipulating markets, and undermining genuine efforts to combat climate change.

The Legislation

The FCA’s anti-greenwashing legislation came into effect on 31 May 2024 and applies to all communications by UK FCA-authorised firms relating to any of their products and services that refer to environmental and/or social characteristics. This includes statements, information and images.

The final rules have been set out in the Finalised Guidance FG24/3 publication, released in April 2024 and include a general anti-greenwashing rule, which can be found in the FCA’s Environmental, Social and Governance (ESG) Sourcebook (ESG 4.3.1R).

The Implications for your business and the consumers

UK firms are already subject to other legislation and guidance regarding sustainability claims such as the Consumer Duty, the Competition and Market Authority’s (CMA) and the Advertising Standards Authority’s (ASA) guidance. However, for investment firms, the new legislation marks a significant shift. Firms must now ensure that their sustainability claims are not only accurate but also comprehensively documented. It is also important that firms regularly review their claims and the supporting evidence, to ensure its continued relevance while communicating those claims. Firms that genuinely prioritise sustainability stand to benefit from increased consumer trust and a more level playing field.

For consumers, the FCA’s introduction of anti-greenwashing legislation is a welcome development. It offers greater assurance that products marketed as sustainable genuinely deliver on their environmental promises, or, at the very least, strive to make a positive impact on the environment. Educated consumers can more effectively differentiate between truly green products and those that are merely greenwashed, promoting more sustainable consumption patterns.

The next steps for you and your firm

1. Senior Management should absorb and understand the legislation and provide training to the relevant employees and teams within the firm.
2. Internal policies and communications should be updated and followed, in line with the new Anti‑Greenwashing Rule.
3. Existing products, services, statements, and marketing material should be reviewed in line with the legislation and considered whether they abide by the new rules.
4. Discrepancies and deficiencies need to be rectified.
5. Future business development with regard to sustainable products and services must have the anti-greenwashing rules at the forefront of decision making.

The link to Consumer Duty

The new rules are consistent with the Consumer Duty. While not all firms in scope of the anti-greenwashing regime are in scope of the Consumer Duty, the FCA expects them to apply the rules and guidance keeping the aim of the Consumer Duty in mind.

This means you should:

• Act in good faith to deliver sustainability-related products and services, taking into account the reasonable expectations of retail customers,
• Avoid causing foreseeable harm, including harm caused through greenwashing and buying unsuitable products,
• Enable and support retail customers to pursue their financial objectives, including where customers have sustainability-related needs and preferences as part of their investment objectives.

What's on the horizon?

There are a variety of upcoming milestones of tasks to be implemented for the rest of 2024, 2025, and 2026. The FCA has published the following implementation timeline:

Reillustrated from the FCA Policy Statement PS23/16

Conclusion

The FCA’s new anti-greenwashing legislation marks a pivotal moment in the fight against misleading environmental claims. By establishing clear standards and educating consumers, the FCA is laying the groundwork for a more transparent and trustworthy market. While the transition may pose challenges for some businesses, the ultimate outcome will be a more sustainable and equitable economy, benefiting consumers, companies, and our environment alike.

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