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The FCA publishes proposed guidance on the new anti-greenwashing rule

In November the FCA published Guidance Consultation GC23/3 – “Guidance on the Anti-Greenwashing rule”. The new rule and associated proposed guidance will both come into force on 31 May 2024.

What is the new anti-greenwashing rule?

The new rule will be contained at ESG 4.3.1R of the FCA’s Handbook. The new rule requires that a firm must ensure that any reference to the sustainability characteristics of a product or service is:

  • consistent with the sustainability characteristics of the product; and
  • fair, clear and not misleading

The FCA’s stated aim in bringing the rule into force and in publishing guidance on the rule is to “help ensure that sustainability-related claims made by authorised firms about their products and services are fair, clear and not misleading, and are consistent with the sustainability characteristics of the product or service. This rule allows us to challenge firms if we consider they are making misleading claims about their products or services and, if appropriate, take further action.”

The FCA has worked closely with the Competition and Market Authority (CMA) and the Advertising Standards Authority (ASA) to ensure guidance is consistent with CMA guidance on environmental claims and the requirements of the ASA’s UK Code of Non-Broadcast Advertising and Direct and Promotional Marketing and the ASA’s UK Code of Broadcast Advertising. Indeed, the FCA’s proposed guidance mirrors and builds upon CMA guidance from a financial services sector perspective and the main principles set down in the FCA’s guidance clearly align with the overarching principles set down in the CMA guidance (in some cases, it would appear the FCA’s guidance has lifted points wholesale from the CMA guidance).


When does the new rule apply?

The rule and the proposed guidance apply to all FCA-authorised firms who make sustainability-related claims about their products and services,  including firms that approve financial promotions for unauthorised persons, for communication in the UK. The rule and guidance apply regardless of whether a firm is subject to the Consumer Duty.

Where firms are subject to the Consumer Duty, they will also need to consider relevant rules under the Duty. The FCA considers that its expectations under the anti-greenwashing rule for the retail market are consistent with the Duty. For instance, under the anti-greenwashing rule, the FCA expects firms to act in good faith towards retail customers, and to enable and support these customers to pursue their financial objectives. The FCA also considers that the anti-greenwashing rule is consistent with the consumer understanding outcome under the Consumer Duty. In particular, PRIN 2A.5 requires firms to give retail consumers the information they require, at the right time, and presented in a way they can understand, to support and enable them to make informed decisions about financial products and services.

The rule and the guidance apply to all communications with existing or prospective clients, customers, consumers or businesses about financial products or services which refer to environmental and/or social (i.e. ‘sustainability’) characteristics of those products or services. It is not limited to just financial promotions. Sustainability-related references can be present in, but are not limited to, statements, assertions, strategies, targets, policies, information, and images.


What does the FCA’s proposed guidance say?

Sustainability-related claims should be:

Correct and capable of being substantiatedClear and presented in a way that can be understoodComplete – they should not omit or hide important information and should consider the full life cycle of the product or serviceFair and meaningful in relation to any comparisons to other products or services

In more detail:

Sustainability-related claims should be correct and capable of being substantiated

At its most basic, this aspect of the rule and guidance requires that firms should not state or imply features of a product or service that are not true. Further, firms should not overstate or exaggerate the sustainability or positive social and/or environmental impact of a product or service.

It is important that firms understand that sustainability-related claims can be incorrect if they provide conflicting or contradictory information.

The obligations under the rule as to the accuracy of claims are continuing:

  • Firms must regularly review their claims and supporting evidence to ensure that the evidence still supports those claims; and
  • Approvers of financial promotions should take reasonable steps to periodically monitor the continuing ongoing compliance of the financial promotion with the anti-greenwashing rule, in addition to all other financial promotion rules that apply over the lifetime of the promotion, not just on approval.

Claims should be clear and presented in a way that can be understood

Sustainability claims should be transparent and straightforward. Firms should use terms that should be generally understood by the intended audience.

Any technical terms should be explained unless their meaning is clear and widely understood.

Firms should consider whether the information being provided is useful for instance, the use of vague, broad or general terms may be unclear or confusing.

Consistent with the requirements of the CMA guidance, firms need to be aware that claims can be explicit or implicit. As such, firms need to consider the overall impression that can be created through the visual presentation of a sustainability claim. The images, logos and colours used contribute to the overall presentation of the claim. Firms should be particularly careful when using images related to sustainability. The FCA’s guidance is clear that claims may be undermined if what they say is factually correct, but their visual presentation conveys a different impression.

The new rule supplements the requirements under the Consumer Duty that firms should:

  • Test their communications where appropriate to ensure that the communications can be understood so that consumers can make informed decisions; and
  • Ensure they have all necessary information to understand and monitor consumer outcomes.

Claims should be complete – they should not omit or hide important information

Firms should ensure that their sustainability claims do not highlight only positive sustainability impacts where this could disguise negative impacts. The FCA’s guidance requires that claims should be presented in a balanced way, and should not focus solely on the positive sustainability characteristics of a product or service, where other aspects might have a negative impact on sustainability.

The example the FCA gives in its proposed guidance is that a bank promotes ‘Green bonds – greening the planet’, which are used to finance a range of sustainability projects including renewable energy and improving the energy efficiency of companies. However, this can include projects to improve energy efficiency of fossil fuel production and distribution (which is not included in the promotional materials). The FCA considers this could be misleading as the bank is omitting information and that omission could give the impression that the product is more sustainable than it really is. In particular, the FCA considers that consumers may associate fossil fuels with negative impacts so the bank should explain why they are eligible activities.

Comparisons should be fair and meaningful

When comparative claims are made, any evidence to substantiate such claims should cover all products or services compared.

The example the FCA gives in the proposed guidance is an insurer that offers ‘The UK’s Greenest Car Insurance’. In the FCA’s view, this product is likely to be understood by the audience as having the most positive overall impact of all UK car insurance products. Whilst this might be an accurate claim, there is no information to demonstrate how the conclusion has been reached and what comparisons the claim is based upon. The insurer should have evidence to back up the claim.


What’s next?

The consultation on the FCA’s proposed guidance is open until 26 January 2024, so if any firms feel strongly that the FCA is heading in the wrong direction with its guidance and proposed approach to the new anti-greenwashing rule, there is time to make those feelings known.

However, we anticipate that the proposed guidance, as set out in Annex 1 to GC23/3, is likely in near final form so firms might reasonably decide that now is the time to start preparing for the new rule based on the proposed guidance and to start looking at their current sustainability claims and any claims planned for the future to ensure compliance.


How can we help?

We are very experienced in reviewing financial promotions and firms’ other communications with clients and advising on compliance with FCA rules and guidance, including the Consumer Duty. Our team can help authorised firms stay the ‘right side of the line’ when making sustainability claims in their communications. Our Financial Services Regulation team also works closely with our CMA and ASA specialists, ensuring communications are consistent with the requirements of all three regulators.


If you have any queries on the FCA’s proposed anti-greenwashing guidance, get in touch with Adam Edwards.


The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.

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