The Anti-Greenwashing Rule

December 2023

In response to feedback received on its October 2022 consultation on Sustainability Disclosure Requirements (SDR), the FCA is now consulting on separate guidance for FCA-authorised firms on applying the general anti-greenwashing rule. The consultation runs until 26 January 2024, with the rule expected to come into effect from 31 May 2024 — a change from the original proposal which would have applied the rule from Q4 2023.

Tackling greenwashing is a regulatory priority for the FCA. The anti-greenwashing rule is one part of the package of measures being introduced through the SDR regime (see a summary of the policy statement and implementation guide for fund managers here). 

The introduction of the anti-greenwashing rule will be key in strengthening the FCA's supervisory toolkit. The rule is intended 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 those products or services.

The rule will apply to all FCA-authorised firms. It states that firms should 'ensure that any reference they make to the sustainability characteristics of their financial products and services are consistent with the sustainability characteristics of the product or service and are fair, clear and not misleading'.

It will apply to all communications about financial products and services which refer to environmental and/or social (i.e. sustainability) characteristics. This includes statements, assertions, strategies, targets, policies, information and images.

The principles behind the anti-greenwashing rule — those of transparency, clarity and not misleading consumers — should not be completely new for firms, which are already subject to requirements such as the FCA's principles for businesses, the Consumer Duty, 'guiding principles' for fund managers, and consumer protection requirements from the Competition and Markets Authority (CMA) and the Advertising Standards Authority (ASA).

However, the rule will be the first time that the FCA focuses specifically on sustainability claims for all authorised firms and to comply with it, firms processes and capabilities may require significant uplift in terms of identifying, reviewing and verifying sustainability-related claims.

The four areas of focus in the guidance are:

1. Claims must be correct and capable of substantiation

• All claims should be factual. This principle could be violated by a firm overstating   the sustainability characteristics of a product or service, or by a firm providing conflicting or contradictory information which does not give users a clear impression of the sustainability characteristics of a product.
• Robust, clear, relevant and credible evidence should be maintained to support the sustainability characteristics of a product. Firms should regularly review their claims against the evidence collected to ensure that the case for a claim is still correct. A product may 'lose' the sustainability characteristics it once had, therefore regular compliance checks should be carried out.
• It may be most appropriate to make evidence supporting sustainability claims public.

2. Claims must be clear and understandable

• Claims made should be transparent and straightforward. Firms should ensure that the intended audience will generally understand the language used. This may require technical terms to be explained, and broad/general terms which are vague or confusing should be avoided. Colours and imagery used in marketing or other materials can also be ambiguous or confusing and should not conflict with written representations on sustainability.
• Firms which are subject to the Consumer Duty should test communications where appropriate. These firms should also ensure that they understand and monitor consumer outcomes in line with other existing Consumer Duty requirements.

3. Complete and considering the full life cycle

• Claims should represent the whole product or service. Where caveats are applied to claims, these should be made clearly and prominently.
• Claims should be balanced, i.e. positive characteristics should not be made in a way which disguises negative impacts.
• Where a claim only refers to a part of a product's life cycle, this should be detailed explicitly.
• Firms subject to CMA and ASA guidance, FCA Principles 6 and 7 or the Consumer Duty, must comply with requirements for claims that they make. This information forms part of a representative picture of a firm, and must therefore be fair, clear and not misleading.

4. Fair and meaningful comparisons

• Comparisons to previous iterations of the same service or product, or to other products (including those of competitors) should be fair and meaningful and allow the intended audience to make informed choices.
• When making comparison claims, firms should present enough information as to the nature of the underlying characteristic, how the comparison was made or determined and the ways in which the comparison is made on a like-for-like basis. Evidence substantiating claims should be comprehensive.
• When making claims about the extent to which a feature of a product or service has sustainability characteristics, firms must be aware that, if the product simply meets a minimum standard of compliance with existing legal requirements, this may give consumers a false impression that the product or service is superior to others.

Firms can respond to the consultation until 26 January and should use the extra time from now until 31 May to continue preparations to meet the anti-greenwashing rule. There are five actions they can take to do this — see KPMG's guide to preparing for the anti-greenwashing rule here.