How authorised firms can prepare for the FCA’s Anti-Greenwashing rule

How authorised firms can prepare for the FCA’s Anti-Greenwashing rule

After much time in gestation, the FCA’s Sustainability Disclosure Requirements and Labelling Regime (SDR) is a game changer for any firm making any sustainability claims about their products or about themselves. A key element is the anti-greenwashing rule. Applicable to all FCA-regulated firms, it will require firms to ensure sustainability-related references are clear, fair and not misleading.

Additionally, any reference to the sustainability characteristics of a product or service must be consistent with the sustainability characteristics of the product or service itself. Failure to comply could lead to a wide range of regulatory actions, that could be both expensive and reputationally damaging.

The FCA’s objective of introducing the anti-greenwashing rule, as per 4.3.1R of their ESG sourcebook, is that it will help to protect consumers from greenwashing, while also creating a level playing field for firms offering products and services with genuine sustainable characteristics. The wording of the rule is as follows;

“A firm must ensure that any reference to the sustainability characteristics of a product or service is: (a) consistent with the sustainability characteristics of the product or service; and (b) fair, clear and not misleading.”

The anti-greenwashing rule was originally proposed to come into effect on the date of the policy statement, however, it will now come into effect from 31 May 2024. To support firms with implementation, the FCA published a Guidance consultation paper (GC 23/3), the consultation ended on 26 January 2024 with final guidance due to be published ahead of the 31 May implementation date.

What does this mean?

For example, a sustainability-related claim could be a claim that a savings account is ‘green’ or ‘sustainable’ and aims to deliver positive outcomes for people or the planet. According to the FCA’s consultation document, it could also include “claims relating to the environment, climate or climate change, biodiversity and nature, social issues, or corporate social responsibility.” Firms that make sustainability or ESG-related claims, would need to ensure that they are:

  • Correct and capable of being substantiated
  • Clear and presented in a way that can be understood
  • Complete – they should not omit or hide important information and should consider the full lifecycle of the product or service
  • Fair and meaningful in relation to any comparisons to other products or services.

What action can firms take?

There is a short window in which to prepare for the anti-greenwashing rule before it becomes effective at the end of May. Whilst the final guidance, when published, may change, firms should already be starting to prepare to meet the new requirements.

The three following practical steps can help firms get ready:

1. Assess if the firm is making any sustainability-related statements in relation to its products, services, or business strategy.

This applies to any customer-facing communications or marketing materials that refer to environmental and/or social characteristics of products and services, or about how the firm does its business.

In making this assessment, firms should consider website communications, annual and financial statements, strategies, policies, and reports. In addition, as the rule brings into scope images, logos and colours, their use should also be assessed.

According to the FCA, claims may be undermined if what they say is factually correct, but their visual presentation conveys a different impression.

2. Assess if all communications and marketing materials, offering documents and regulatory disclosures are accurate and consistent with the sustainability characteristics of products and services.

Communications need to be factually correct. The sustainability or positive social and/or environmental impact of a product or service should not be exaggerated, and any claims should be correct, coherent and consistent across all communications.

Furthermore, it is important that there is a consistent approach across the business around the meaning of the sustainability terms used to avoid inconsistencies, and incoherent or incorrect claims.

3. Review whether there are appropriate governance and oversight controls over the sustainability communications that the firm makes.

Firms should ensure that there are appropriate oversight and sign-off processes. Additionally, greenwashing risk must be regularly monitored against sustainability references and claims. Firms should ensure that there is available evidence to support claims made.

There should be a process in place to review financial promotions and other communications periodically to monitor and ensure their ongoing compliance with the anti-greenwashing rule.

By introducing the anti-greenwashing rule, the FCA is sending a clear message to firms that it intends to challenge them over their sustainability-related communications, and it is expected that the regulator will take enforcement action against any firms identified as non-compliant.

If you need support to understand the anti-greenwashing rule, the SDR regime more broadly, or how BDO can help you, please get in touch with our specialist team.