As of 31st May 2024, all authorised firms must comply with the Anti-Greenwashing Rule enforced by the Financial Conduct Authority (“FCA”). The FCA published its finalised guidance (FG24/3) last month with the new Anti-Greenwashing Rule being part of the FCA’s wider Sustainability Disclosure Requirements (“SDR”) package. In the guidance published on 23 April 2024, the FCA set out how to interpret and implement the new rule. Importantly, this non-Handbook guidance came into force at the same time as the anti-greenwashing rule itself (31 May 2024).
The Anti-Greenwashing Rule
The FCA introduced the Anti-Greenwashing Rule to protect consumers from misleading sustainability claims. The Rule, per ESG 4.3.1R will require all regulated firms to ensure that the naming and marketing of financial products and services in the UK is not only clear, fair and not misleading but also consistent with the sustainability profile of the product or service, i.e., proportionate and not exaggerated. Firms should already be ensuring the information they communicate to clients is clear, fair and not misleading under PRIN 2.1, Principle 7 and COBS 4.2.1.
Application of the Rule
The Rule applies where a firm (regardless of jurisdiction) communicates with a client in the UK in relation to a product or service. For financial promotions, it will apply where firms communicate to or approve a promotion to a person in the UK.
Claims should be correct and capable of being sustained
Firms must ensure that their statements are based on facts. Firms should not state or suggest features of a product or service that are not fundamentally true. Further, it is important not to overemphasise or inflate the sustainable qualities or positive environmental and/or social impact. Any descriptions provided should accurately reflect the actual sustainable features of the product or service. Where claims offer inconsistent or conflicting details, this may confuse and deceive consumers. It is essential for firms to regularly review their claims and any evidence that supports them. This means that this should form part of the firms ongoing monitoring process.
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, so firms should consider whether any technical terms could be explained or clarified for the intended audience to avoid any confusion, unless their meaning is clear and widely understood. Note that whether a term is widely understood is largely a subjective test and firms should employ a risk-based approach here. Consider including a description via asterisk for example. The use of broad terms or general statements may be also unclear and confusing and should be avoided.
Claims should be complete and should not hide or omit information
Claims should give a full and representative picture of the product or service. Firms should not omit or hide important information that could negatively affect consumer choices. Attempts to conceal or skew information will breach the new rule. If certain conditions must be met for the claims to be valid, this information should be stated explicitly. Similarly, any constraints or restrictions related to the information, data or metrics featured in a claim should be highlighted to the consumer.
Comparisons should be fair and meaningful
When firms make comparisons between their product or service and those of any competitors, or even the firm’s own previous products and services, those claims must be capable of being substantiated. Comparisons should enable the audience to make informed choices about the products or services. 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’ in order to be fair and meaningful.
It is expected that this will not be the last publication from FCA on Anti-Greenwashing or SDR as it continues to roll out the rest of its wider SDR and ESG strategy offering. It is paramount that firms have adequately prepared for the fast-approaching 31 May deadline. With increasing supervision and enforcement against non-compliant financial promotions and bad practices, it is crucial that firms get this right. At Complyport, we can offer our expertise to review and assess your readiness for the incoming rule alongside wider ESG compliance. We provide expert advice on implementation and can help draft your internal ESG policies and procedures to ensure your firm stays compliant.
To learn more about these rules and how they affect your firm, register for our upcoming FREE webinar – Green Claims to Genuine Practices: Understanding the FCA’s 2024 ESG and Greenwashing Regulations
How Complyport can help:
Having to navigate the ever-evolving SDR landscape within the financial services sector can be time-consuming. With the Anti-Greenwashing rules now in force, our consultants offer a tailored and flexible approach to ensure your firm is prepared. We offer:
- Financial Promotions Reviews
- Implementation Guidance and Advisory services
- SDR/ESG Readiness Assessments
- SDR/ESG Review against categories
- Policy and procedure updates
- Ongoing support for any questions regarding the new regulations
- SDR/ESG Training
