As we approach the May 31 2024 deadline for the Financial Conduct Authority’s (FCA) Anti-Greenwashing Rule (AGR), we explore what organisations can do to demonstrate genuine sustainability commitment, drive meaningful impact and enhance their reputation among consumers and investors.
What is the FCA trying to achieve?
The goal of the Financial Conduct Authority’s (FCA) Anti-Greenwashing Rule (AGR) is to ensure that any references to sustainability characteristics are consistent with the actual sustainability profile of the product or service and are clear, fair, and not misleading. Read more about the AGR and the FCA’s draft guidance here -The Anti-Greenwashing Rule - KPMG Global.
The AGR adds to existing regulatory requirements on client communications. Most recently, the FCA introduced new rules under the Consumer Understanding outcome of the FCA’s Consumer Duty. These require firms to deliver understandable information to retail customers that meets their needs and enables them to make effective, timely and well-informed decisions about products and services. Irrespective of whether firms are subject to the Duty, they will need to comply with the AGR. Looking ahead, fund managers will also need to comply with naming and marketing restrictions under the FCA’s Sustainability Disclosure Requirements. Overall, new requirements and supervisory reviews have led to increased attention on the language and communications used in relation to sustainability.
Controls around the design of communications and their content are a key component of organisations’ anti-greenwashing frameworks. Ahead of the AGR and guidance coming into effect on 31 May 2024, financial institutions need to prepare, not only to comply with the new AGR and guidance, but to work with marketing and corporate communications teams to enhance customer understanding and seize the opportunity for commercial growth.
What steps should communications teams take now?
1. Test yourself today
To prepare for the AGR, organisations must proactively check the compliance of all existing communication assets that could make sustainability claims - including websites, digital and printed materials, video content, all advertising formats and social media feeds. This involves conducting a comprehensive review of marketing, promotional and brand materials, and regulatory disclosures to ensure accuracy and alignment with the sustainability characteristics of products. It's crucial to scrutinise the terminology used in these communications and establish clear definitions to ensure the credibility of product descriptions and sustainability-related claims.
Firms can start by creating a bespoke AGR glossary of terms, with agreed definitions that would comply with the rule and guidance. This will better enable marketing, legal and compliance teams to accurately review their communications assets and identify potential greenwashing risks and breaches of the rule. Given the extensive nature of this effort, leveraging tools such as artificial intelligence (AI) and machine learning (ML) can drive efficiency and provide an additional layer of confidence.
2. Future-proof yourself
By recognising that anti-greenwashing efforts are ongoing, organisations must establish and embed an integrated governance framework with clear policies covering operations, product development, marketing and client interactions, to ensure clear communications and mitigate future risks effectively.
Many financial institutions are future-proofing themselves by setting up sustainability review committees dedicated to continuously testing communications and marketing assets for greenwashing risks. Ahead of the AGR coming into effect in May, organisations should implement robust monitoring and reporting mechanisms to track the environmental and social impact of financial products and services, and assess their compliance with the rule and guidance. By incorporating these measures into their processes, organisations can quickly demonstrate their commitment to the AGR and normalise greenwashing risk management.
3. Elevate your team
Organisations should support their employees by upskilling them on the new requirements and equipping them with knowledge to confidently talk about sustainability-related terms and use them accurately. This can be achieved through general and role-based training.
Equipping your workforce with the right knowledge will mean that they can conduct thorough due diligence and have sufficient frameworks at hand to check the authenticity of sustainability-related data and claims. Conversely, if your workforce is not upskilled to talk about sustainability, it could lead to a risk of inaction and inadvertently greenwashing.
Whilst it is important for all employees within an organisation to have a comprehensive understanding of sustainability-related terms, it is crucial that frontline teams receive more specialised training. This includes those in communications, customer interaction, and sales and distribution staff, such as financial advisers. By upskilling these employees with the knowledge, skills and resources to navigate greenwashing risks in their roles and interactions with customers, organisations can create a cultural shift in their sustainability ambitions and maintain accurate external messaging.
4. Beyond compliance
Financial institutions can take a step further and use sustainability-related requirements, including the AGR, as a strategic opportunity to elevate their brands and demonstrate their genuine commitment to addressing global and local environmental and social challenges.
This can be achieved by ensuring that communications strategies are customer-centric. For example, organisations can engage customers through educational initiatives and interactive platforms.
By using storytelling techniques, financial institutions can evidence their sustainability efforts and impact, and how this is more than simply complying with a regulation. This could involve showcasing real-life success stories of how investments have positively impacted communities or the environment in line with their sustainability claims.
Not a once-and-done task, but an ongoing mindset shift.
Similar to the Consumer Duty rules, communications is only one area that firms need to address to meet the AGR. It is imperative for firms to prioritise transparency and integrity in their communications surrounding sustainability. Not only should organisations adhere to the guidelines set forth by the FCA, but they should elevate their sustainability strategy by embracing proactive measures to enhance their credibility and reputation in the eyes of consumers and investors. Through targeted upskilling and setting clear expectations for behaviours through compelling campaigns, organisations can create the cultural shift they need to prepare for the AGR.
Sustainability, marketing and communications leaders need to ask themselves the following questions in preparation for the AGR:
- Are existing communications exposed to greenwashing risks? Have all public and client-facing marketing and communications materials been reviewed in relation to AGR compliance?
- Are the right policies, guidelines, governance structures and review committees in place to effectively monitor and mitigate greenwashing risks?
- Have employees, especially those in key roles, been informed and trained about the upcoming requirements and do they understand the impact on their responsibilities?
- How can growth opportunities be leveraged to go beyond compliance with the regulations and capitalise on the opportunity to elevate the firm’s brand and demonstrate genuine commitment to sustainability?
Contact us
We can support you on your readiness journey from an anti-greenwashing rule health-check to establish risk management frameworks and beyond with a tailored communications review and training activities to meet regulatory requirements.
