FCA's final guidance on the anti-greenwashing rule - what's new?

On 23 April 2024 the FCA published its finalised non-handbook guidance on the anti-greenwashing rule (AGR), and confirmed the guidance will come into force on 31 May 2024 alongside the AGR.

The implementation date remains unchanged despite calls from some industry stakeholders for a short delay to allow more time for firms to prepare, and to coincide with both the upcoming SDR and labelling regime (31 July 2024) and the naming and marketing rules for asset managers (2 December 2024).

While there are new examples of good practice in the final guidance, various areas of ambiguity remain. Subject to any future updates from the FCA, greater understanding of its expectations for firms will now come through its supervisory engagement and any enforcement actions.

We anticipate that firms will encounter challenges from the regulator, customers and/or environmental/social campaign groups in respect of adherence (and perceived adherence) to the AGR. Concerns around such challenges (including litigation) were highlighted in many responses to the consultation (see our previous article on the FCA’s consultation on the guidance here).

To the extent they have not already done so, firms must take steps now to ensure compliance with the AGR and guidance ahead of the month-end ‘go-live’ date, in order to mitigate the attendant regulatory and litigation risk. We will be publishing further guidance on how firms may choose to do so very shortly.

What’s new in the final guidance?

As a reminder, the AGR (ESG 4.3.1R) requires firms to ensure that any reference to the sustainability characteristics of a product or service is consistent with the sustainability characteristics of the product or service, and is fair, clear and not misleading.

Scope

The final guidance clarifies that the AGR applies when a firm (whether operating a customer-to-business or business-to-business model):

• Communicates with clients in the UK in relation to a product or services; or
• Communicates a financial promotion (or approves a financial promotion or communication) to a person in the UK; and that it applies with respect to references to sustainability characteristics (i.e. environmental and/or social) of a product or service.

Interaction with other rules

The FCA has confirmed that the AGR is not intended to be a substitute for, or to override, existing rules in the Handbook, including similar rules about communications being fair, clear and not misleading [1].

The FCA also clarifies that the AGR does not apply directly to generic sustainability claims a firm may make about itself (as opposed to about its products or services). It does however remind firms (including in the feedback statement) that:

• such claims are covered by various other rules [2]; and

• they should also consider how firm-level sustainability claims may be considered part of the ‘representative picture’ (referenced in the ‘Complete’ requirement) in a decision-making process about a product or service.

The final guidance and feedback statement also note the FCA has worked closely with the Competition and Markets Authority and Advertising Standards Authority to ensure consistency with their related anti-greenwashing guidance (see the CMA’s here and the ASA’s here), which, unlike the AGR, do extend to claims a firm may make about itself.

Core requirements

Sustainability references should be:

• Correct and capable of being substantiated.

The FCA recommends that firms make the underlying evidence public (although recognises that firms may determine it is not always appropriate to do so) and also consider how to balance providing sufficient detail with ensuring the information is clear and can be understood by its audience (i.e. retail or professional) in accordance with the ‘Clear’ requirement.

The FCA has declined to clarify certain, potentially unclear, terms such as the “regular review” firms need to undertake to ensure the evidence supporting a claim is relevant for so long as the claim is being made and continues to be made. It will be up to firms to determine how frequently and/or upon what trigger events they need to review their claims in order to remain compliant “on an ongoing basis”.

In response to stakeholder queries on the extent to which they could place reliance on third party information, the FCA stated that firms should consider the ‘appropriateness’ of relying on this in order to substantiate their sustainability claims.

• Clear and presented in a way that can be understood.

In a similar vein, the final guidance for the ‘Clear’ requirement includes a new paragraph recommending firms consider whether the information they are providing and the way they are presenting it is useful and appropriate for the intended audience. Clearly, firms will need to tailor claims and communications.

It also recommends that firms consider how images, logos and colours may be perceived by the relevant audience when presented alongside sustainability characteristics of a product or service.

• Complete – they should not omit or hide important information and should consider the full life cycle of the product or service.

Another material addition to the guidance is a new paragraph encouraging firms to give thought to what information they need to include to give the ‘representative picture’ they are required to.

In particular, the FCA flags that firms should consider whether information about the firm itself may be considered part of that picture and reminds firms of the interrelationship with other key FCA rules in that regard, such as the Consumer Duty.

• Comparisons to other products or services are fair and meaningful.

The guidance clarifies that relevant comparisons may include comparisons between earlier and current versions of a product offered by the same firm, and/or as between equivalent products or services offered by other firms.

As noted above, we will shortly publish a further article looking at how firms can take steps now to mitigate their regulatory and litigation risk ahead of the AGR and guidance coming into force on 31 May 2024.

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[1]  For example PRIN, COBS 4.2 and the Consumer Credit Sourcebook 3.3

[2]  i.e. FCA Principles 6 and 7, the Consumer Duty where relevant, and CMA and ASA guidance

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.