The FCA’s new rules to combat greenwashing which aim to protect financial services customers from ‘greenwashing’ claims come into force from today.
This new anti-greenwashing rule (AGR), which applies to all FCA-authorised firms, is designed to ensure that consumers are protected from misleading sustainability-related claims, enabling them to make informed decisions that are aligned with their sustainability preferences.
All sustainability-related claims made by financial services companies about their products and services must be fair, clear and not misleading. Financial firms that fail to comply could face supervisory action by the regulator.
Commenting on the introduction of the rules, Richard Weighell, Financial Services Advisory Partner at accounting and business advisory firm BDO LLP said: “While the final guidance was only published last month, firms have had a significant amount of time to prepare for the introduction of the FCA’s anti-greenwashing rule. By now, they should have substantially completed their programmes of work to ensure sustainability-related claims in their communications are clear, fair and not misleading.
“Given the long lead time ahead of the introduction of the AGR, we expect the FCA to immediately be monitoring firms’ sustainability-related claims, taking supervisory action where necessary.
“The FCA’s final guidance refers to the four C’s. Any sustainability references should be correct and capable of being substantiated, clear and complete, and with any comparisons being fair and meaningful.
“In layman’s terms, firms will need to ensure they check any sustainability-related statements they are making and be able to justify them. This should include general statements on websites, as well as in product and service literature. These claims will need to be backed up with sufficient evidence to rationalise the disclosure.
“In our experience, firms that don’t think they’re making any claims about sustainability may be more at risk of inadvertently breaching the rule, as opposed to those firms that are well-aware of their sustainability claims.
“We have seen good practices adopted by many firms in preparation for the AGR, such as compiling inventories of sustainability-related claims, conducting greenwashing risk assessments and enhancing governance and oversight processes. However, it’s likely that some firms will have to play catch-up to avoid coming under regulatory scrutiny.”
Sasha Molodtsov, also a partner in BDO LLP’s Financial Services Advisory practice, said:
“It is also important to note that the AGR applies with respect to references to sustainability characteristics, which the FCA has explicitly specified includes both environment and/or social characteristics of a product or service. We have observed the common misconception that the AGR applies to environmental claims only.”
Caroline Greenwell, Partner at London law firm Charles Russell Speechlys, has been working closely to these developments and said:
“In the past, the majority of greenwashing allegations have featured consumer brands and their advertising and marketing. Whilst these cases have raised the spectre of greenwashing as an issue and brought about warnings and commentary from the Advertising Standards Authority which may well have been noted in other sectors, activity concerning greenwashing issues has undoubtedly been centred on the retail and food & beverage sectors.
“These developments from the FCA could change all that. The new anti-greenwashing rule and guidance means that the risk of greenwashing no longer just concerns consumer brands, but now all FCA-regulated firms who make claims as to the sustainability characteristics of a product or service which they offer. This could change the game on the scope of greenwashing risk, and depending on how active and draconian the FCA’s enforcement of their rule is, we are likely to see a significant uptick in regulation and even litigation arising out of investment firms’ sustainability claims.”
Also commenting on the rule coming into effect, Lucy Blake, Partner and ESG legal expert at law firm Jenner & Block, said:
“The new anti-greenwashing rule, while emphasising practices that regulated firms should already follow, such as making fair, clear, and not misleading statements, puts greenwashing firmly in the FCA’s sights.
“The FCA is prepared to act against firms posing consumer harm or serious misconduct, with potential penalties including fines and suspensions. And it’s not just the FCA’s scrutiny firms need to watch out for, greenwashing can lead to actions from other UK regulators such as the Competition and Markets Authority and the Advertising Standards Authority, civil claims from consumers, and severe reputational damage.
“Firms need to avoid cherry-picking data and ensure transparency by considering the full life cycle of products in sustainability claims. It’s not a one-time tick-box exercise either – continuous monitoring and updating of a product’s sustainability status is required to maintain compliance.
“Firms must also be cautious about relying on third-party information, as they are responsible for verifying and transparently sourcing all data.”
