FCA anti-greenwashing rule

On 23 April 2024 the FCA published its final guidance on the new anti-greenwashing rule (AGR), which is due to come into force on 31 May 2024.  This followed publication of draft guidance in November 2023, the consultation on which closed in January 2024. 

As discussed in one of our previous articles, a number of industry responses to that consultation highlighted areas of ambiguity in the draft guidance, leaving firms concerned about regulatory and/or litigation risk arising, and seeking clarification from the FCA.

While the final guidance has gone some way to addressing those, in its feedback statement the FCA has emphasised that it has kept the final guidance principles-based (with a view to it being applied across different sectors), which leaves, not insignificant, scope for interpretation for firms to navigate.  

Regulatory approach

The FCA has been at pains to stress that, for most firms, the AGR does not introduce a new requirement as they should already be:

• ensuring their claims are fair, clear and not misleading under existing FCA rules and requirements; and

• compliant with related guidance by the Competition and Markets Authority and Advertising Standards Authority to similar effect. 

The fact remains however that the FCA has nonetheless considered it appropriate to introduce the AGR, in addition to the existing rules and requirements in this space. The AGR provides a new, more focussed, framework for supervision and enforcement in relation to sustainability claims, and the FCA has signalled an intention to use its powers to manage non-compliant firms.  As the FCA indicated in its ‘Introduction’ to the final guidance: “It gives us an explicit rule on which to challenge firms if we consider they are making misleading sustainability‑related claims about their products or services and, if appropriate, take further action”.

Firms are therefore unlikely to take much comfort from any downplaying of the potential impact the AGR and guidance may have when they come into force at the end of this month.

In response to questions raised in consultation, the FCA also states in the final guidance 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”.

Therefore, despite the assurance of a ‘BAU’ approach, given the level of public interest in sustainable products and widespread concerns about greenwashing more generally, we anticipate the FCA will be keen to be seen as taking proactive and robust steps to enforce the AGR.   

Potential litigation risk

In a similar vein, the introduction of the AGR also significantly raises the profile of the FCA’s expectations of firms in this regard to the public, in particular all potential ‘audiences’ to whom firms may make sustainability-related claims. These include existing and prospective clients, customers, consumers or businesses. 

At a very high level, a breach of the AGR, as any other FCA rule, will be actionable by a ‘private person’ who suffers loss as a result of such breach, pursuant to s.138D of the Financial Services and Markets Act 2000.

Outside of the cause of action afforded by s.138D to ‘private persons’, firms may (also) find themselves in receipt of allegations of misrepresentation by other firms and organisations in relation to sustainability claims. While breach of the AGR itself may not directly give rise to such misrepresentation claims, which are likely to be harder to prove in terms of establishing a firm’s liability (and loss will potentially be difficult to prove in either scenario), we anticipate analogies with respect to alleged breaches of the AGR will be drawn by prospective claimants when formulating claims.

There is also the question of what other ‘follow-on’ litigation may arise as a consequence of potential enforcement of the AGR by the FCA, such as, for example, civil asset freezing claims or negligence claims following suspension of trading authority by the FCA.

Practical steps to mitigate risk

Regulatory and litigation risk can never be excluded entirely, but – to the extent they have not already done so - firms can take steps now to ensure they are mitigating such risks, while still investing in and promoting their green/sustainable products and services:

• Undertake a review of the firm’s compliance framework to ensure that adequate policies and procedures are in place to capture the requirements of the AGR including the points set out below.

• Capture and review of all current sustainability references (including associated use of logos and colours etc) against the final guidance, noting the examples of poor and good practice.  Unless/until greater clarity emerges, it would be prudent to take a cautious approach to the question of what documents might be said to contain sustainability references (however brief/generic they may seem).

• Remaining cognisant that claims a firm makes about itself may be considered part of the ‘representative picture’ of a product or service.  This will likely require a particularly delicate balancing act by firms already concerned about the greenwashing risk associated with supporting high emitting companies that are also offering products or services with sustainability characteristics.

• Careful assessment and testing of the evidence upon which current sustainability claims are based, in particular where supplied by third parties.

• Considering and implementing regular reviews of all relevant claims; firms will have to take a view on the appropriate frequency but relevant factors will include its normal best practice, the life-cycle of the product/service, key milestones and/or any potential trigger events within that.

• Implementing systems and controls to ensure new sustainability claims are similarly captured and reviewed going forwards.

• Training for all relevant staff (including but not limited to product development, sales, marketing and PR teams), potentially including refresher training on existing requirements and how they interact with the AGR, and – where relevant – on the SDR and labelling regime, and naming and marketing rules due to come in later this year.

• Monitoring updates to relevant guidance from the FCA (and CMA and/or ASA where applicable), enforcement findings, and – at a higher level – developments in market thinking on sustainability, and implement changes to the reflect them where appropriate.

It will be interesting to see to the extent to which the concerns around regulatory and litigation risk manifest over the coming months, and whether the FCA issues any updates to the guidance.  We will be monitoring the position closely and will write further on key developments as they arise.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2024. Specific advice should be sought for specific cases. For more information see our terms & conditions.