New FCA anti-greenwashing rule and guidance

The FCA is introducing a new anti-greenwashing rule, due to come into force at the end of May this year.

In summary, the anti-greenwashing rule will require all FCA-authorised firms to ensure that sustainability-related claims made about financial products or services are “clear, fair, and not misleading, and consistent with the sustainability profile of the product or service”. The rule comes as part of a wider package of measures updating the FCA’s ESG Handbook, including in relation to marketing materials more generally, including investment labels (see PS23/16). The rule will apply to all FCA-authorised firms that make sustainability-related claims about their products and services. This includes firms which approve financial promotions for unauthorised persons, for communication in the UK.

Scope and significance of the new anti-greenwashing rule

The FCA notes that these additions to the ESG Handbook are being introduced against the backdrop of increasing consumer demand for sustainable products and services. As a result, there have been a growing number of different financial products and services which claim to meet that demand. The policy rationale for the rule appears to be that if consumers trust the sustainability-related claims firms are making about their products and services, this increases confidence in markets and the flow of capital into products that can genuinely drive positive change.

The new anti-greenwashing rule is also significant in supporting the important role the financial services sector has to play in helping the UK economy transition to net zero and adapt to a more sustainable future. Moreover, the FCA now has a legal obligation under the regulatory principle introduced in the Financial Services and Markets Act 2023 to contribute towards the government’s commitment to achieve a net zero economy by 2050, where appropriate. The anti-greenwashing rule is therefore intended to support the FCA’s strategy in this regard by improving trust, credibility and integrity in the sustainable finance market.

It is also perhaps notable that the language in the anti-greenwashing rule tracks the language in Principle 7 of the FCA’s Principles for Business and Rule 2A.5.3 of the FCA’s flagship Consumer Duty, that communications to retail customers must be “clear, fair and not misleading”. The FCA is clearly focussed on the requirement for fair dealing and transparency in achieving good customer outcomes, and intends these principles to be at the heart of its regulatory regime going forwards.

Guidance on the anti-greenwashing rule

In November 2023, the FCA opened a consultation on guidance around the anti-greenwashing rule and how it will operate in practice, which has recently closed to new responses.

The FCA has summarised its proposed guidance as follows (GC23/3):

"Sustainability references should be:

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 life cycle of the product or service

Fair and meaningful in relation to any comparisons to other products or services"

(FCA's emphasis)

In some respects the proposed guidance simply restates and expands on the subject matter of the rule itself. Perhaps the most notable clarifications are that relevant claims should be complete, capable of being substantiated and meaningful in the sense of being capable of comparison with other products or services. This potentially gives fertile ground to customers or claimant firms to challenge the basis for the claims and the need for expert evidence to compare the product or services with others in the market.

Given the potentially broad reach of the anti-greenwashing rule, formal guidance will be welcomed by firms once it is finalised. The final guidance is expected to be published in early 2024, in tandem with the anti-greenwashing rule coming into force.

We will be following developments closely and publishing further updates and analysis around these important new regulatory requirements over the coming months. Look out for updates covering a deeper-dive into the new additions to the ESG Handbook, in particular the investment labels regime. We will also be having a closer look at the anti-greenwashing rule as its implementation date nears and the final guidance is published, including what its practical implications are likely to be for clients, the key dos and don’ts, and the broader disputes risks.

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