On 23 April 2024, the UK’s Financial Conduct Authority (“FCA“) published its “Finalised non‑handbook guidance on the Anti‑Greenwashing Rule (FG/24/3)” (the “Guidance“). The FCA has published the Guidance to help in-scope firms understand and comply with the anti-greenwashing rule, which will come into effect on 31 May 2024.
Background
The anti-greenwashing rule is part of a package of measures that the FCA introduced on 28 November 2023 through its “Sustainability Disclosure Requirements (SDR) and investment labels policy statement (PS23/16)” (for more information about this package of measures, read our earlier update here).
As part of this package of measures, the FCA published a guidance consultation paper, “Guidance on the Anti-Greenwashing rule (GC23/3)“, which was open for consultation from 28 November 2023 until 26 January 2024. The Guidance reflects the feedback received during this consultation period and intends to provide more holistic guidance to firms that will have to comply with the anti-greenwashing rule.
The Anti-Greenwashing Rule
The anti‑greenwashing rule, which is included in the Environmental, Social and Governance Sourcebook (ESG 4.3.1R) section of the FCA Handbook, requires all FCA-authorised firms to ensure that any reference to the sustainability characteristics of a product or service is consistent with the sustainability characteristics of the product or service, and is fair, clear and not misleading.
The anti‑greenwashing rule will apply when an FCA-authorised firm:
- communicates with clients in the UK in relation to a product or service that is made available to clients in the UK; or
- communicates a financial promotion (or approves a financial promotion for communication) to a person in the UK; and
- that communication includes references (such as statements, assertions and targets) to sustainability (environmental and/or social) characteristics of a product or service that is made available to clients in the UK.
The anti‑greenwashing rule is intended to complement and be consistent with other pre-existing rules that require FCA-authorised firms to ensure that information they communicate is fair, clear and not misleading, including the Principles for Businesses (PRIN) and the Conduct of Business Sourcebook (COBS) sections of the FCA Handbook.
However, questions remain over the extent to which the anti-greenwashing rule will apply to financial promotions which are exempt under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (e.g. in respect of marketing materials issued to MIFID II professional clients/eligible counterparties, as well as in respect of marketing materials issued to investment professionals and high net worth individuals).
The Guidance
To help firms better understand the FCA’s expectations for complying with the anti-greenwashing rule, the Guidance provides that sustainability references should be:
- Correct and capable of being substantiated: Claims should (amongst other things): be factual; not state or imply features that are not true; not overstate or exaggerate positive environmental and/or social impact; and be capable of being substantiated at the point in time at which they are made;
- Clear and be presented in a way that can be understood: Firms should (amongst other things): consider whether the meaning of all terms would be understood by the intended audience; not use terms that may give the impression that a product or service has sustainability characteristics that it does not have; be aware of the overall impression a visual presentation of a claim can create; and consider whether the information they are providing is useful for the intended audience;
- Complete – they should not omit or hide important information and should consider the full life cycle of the product or service: Claims should (amongst other things): give a representative picture of the product or service; not highlight only positive sustainability impacts where this disguises negative impacts; consider the life cycle of a product or service; and give a representative picture of the product or service; and
- Comparisons to other products or services are fair and meaningful: Firms should (amongst other things): ensure that claims comparing sustainability characteristics make clear what is being compared and how comparisons are being made; only compare like with like; be careful when making claims about the extent to which a feature of a product or service has sustainability characteristics when it may simply be meeting a minimum standard of compliance with existing legal requirements; and provide evidence to substantiate comparative claims.
The Guidance provides a number of illustrative examples in respect of (1)-(4), which in-scope firms should consult when determining whether their communications comply with the anti-greenwashing rule.
What next?
The anti-greenwashing rule will come into effect on 31 May 2024. FCA-authorised firms should consider the Guidance when making communications that fall within scope of the anti-greenwashing rules. Mayer Brown lawyers are available to assist you with this.