FCA guidance on new anti-greenwashing rule
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On 31 May, the Financial Conduct Authority (FCA) will introduce a new anti-greenwashing rule to ensure that sustainable products and services are advertised correctly and responsibly to consumers. Ahead of its implementation, the FCA has released guidance to assist regulated firms with their adherence to the new rule. The full guidance can be found here.
The anti-greenwashing rule
The new anti-greenwashing rule is part of the FCA’s Sustainability Disclosure Requirements and Labelling Regime, which is applicable to all FCA-regulated firms. It will apply when firms communicate with clients in the UK in relation to products or services, and when they communicate a financial promotion to a person in the UK.
The aim is to protect customers from greenwashing, and to create fair competition for those firms that are offering genuinely sustainable products. When making sustainability-related claims, firms will need to ensure that they are fair, clear and not misleading, as well as being consistent with the sustainability characteristics of the product or service in question.
The rule will complement several that are already in place within the FCA’s Handbook requiring firms to communicate in a fair, clear, and not misleading way. As such, the new rule should not impose a significant change, particularly as, in addition, firms are already required to be compliant with CMA and ASA rules and guidance of a similar nature.
However, the significance of the new anti-greenwashing rule should not be downplayed. Failure to comply could result in significant consequences, with the FCA having the power to utilise a wide range of civil, criminal, and regulatory enforcement powers. The guidance states that:
“We will take our usual supervisory and enforcement approaches. We may take supervisory or enforcement action where we have reason to believe that there is risk of consumer harm or where serious misconduct may have taken place”.
The guidance
The FCA’s guidance does not create additional obligations on firms, but does clarify the FCA’s expectations. For example, it is expected that sustainability claims will have the following characteristics:
Correct and capable of being substantiated.
Claims should be factually correct, with statements being accurate rather than exaggerated. The guidance highlights the importance of firms obtaining evidence to support sustainability claims that they make. This evidence must be robust and credible and should be reviewed during the time that the claim is being communicated to ensure it remains relevant.
Clear and presented in a way that can be understood.
Claims should be straightforward, with firms ensuring that all terms used are capable of being understood by the intended audience. Care must also be taken with the visual representation of the sustainability claim to ensure that images and colours do not give the incorrect impression.
Complete – they should not omit or hide important information and should consider the full life cycle of the product or service.
Claims should not miss out important information that might have a negative impact on a consumer’s view of a product or service. Claims should be balanced and avoid only showing the positive sustainability attributes in order to mask negative ones. The overall picture created by the claim should be a representative one.
Comparisons to other products or services are fair and meaningful.
If comparisons are made with other products or services, it should be clear what and how a comparison is being made without being misleading. Evidence will be required to substantiate these comparisons.
The guidance confirms that the anti-greenwashing rule relates to sustainability claims that are made about a firm’s products and services, leaving some ambiguity about how it might apply to claims that firms make about themselves. However, CMA and ASA guidance on the matter already requires any such claims to comply with their own rules on greenwashing.
Comment
The FCA’s commitment to reducing greenwashing is consistent with many different industries that are addressing and tackling the issue, the broad consensus being that claims should be clear, accurate and capable of being substantiated. In advance of the 31 May, firms should ensure that all communications are in line with the guidance provided by the FCA by reviewing their policies and procedures. The guidance acts as a practical resource that firms can use to check that they are meeting the FCA’s expectations, with helpful examples to provide further clarity.