The Financial Conduct Authority’s (FCA) new anti-greenwashing rule comes into force on 31 May 2024 and will apply to all firms that make claims about the sustainability characteristics of their products or services and will require that any such claims are consistent with the sustainability characteristics of the product or service, and are fair, clear and not misleading.
The ‘golden thread’
The Consumer Duty is often described as the ‘golden thread’ that runs through all financial services regulation and it is standout here. There is significant consumer interest in sustainable products and the clear aim of the anti-greenwashing rule is to protect consumers and enable them to make informed financial decisions that are consistent with their sustainability preferences.
The FCA has issued further guidance on the scope of the new rule and its expectations ahead of the implementation date. The guidance is intended to assist firms to understand and implement the new rule.
Fundamentals
Key points to note include:
- the term ‘sustainability characteristics’ refers to the environmental or social characteristics of a product or service;
- firms are subject to additional rules governing sustainability-related claims they make about themselves - firms will need to consider whether such information may be considered part of the ‘representative picture’ of a product or service;
- the range of communications caught by the rule is broad and includes images relating to a product or service;
- the rule complements and is consistent with other fair, clear and not misleading obligations and the Consumer Duty;
- the rule applies where a firm communicates with clients in the UK or communicates (or approves) a financial promotion in the UK; and
- the new rule is also consistent with other legislation and guidance that applies to sustainability-related claims (such as consumer and business protection legislation and the Competition and Markets Authority’s (CMA) Green Claims Code).
The guidance provides clarity and practical examples as to how the rule will work in practice. The key message is that sustainability related claims must be (1) correct, (2) clear, (3) complete, and (4) compared to other products or services in a way that is fair and meaningful:
- Correct: claims should be true, not exaggerated and capable of corroboration.
- Clear: claims should be transparent, clear and capable of being understood by the intended audience.
- Complete: claims must not omit or hide important information that might influence consumer decision-making and any conditions should be clearly and prominently stated.
- Comparisons: comparisons must be fair and meaningful and compare like for like. Comparisons should assist consumers to make informed choices.
Imagery
Firms should be aware of the overall impression a visual presentation of a claim can create and this includes how images, logos and colours together may be perceived when presented alongside other sustainability characteristics of a product or service. There are clear risks relating to sustainability claims associated with visuals that might convey a different or inconsistent impression.
Collaboration
The FCA is not alone in its endeavour to combat greenwashing. Other UK regulators, namely the CMA and Advertising Standards Agency (ASA), have been making similar efforts, developing rules and guidance and engaging in investigations into companies/businesses that may be engaging in greenwashing practices. The CMA’s consumer law enforcement powers are also expected to be significantly strengthened later this year should the Digital, Markets, Competition and Consumer (DMCC) Bill complete its passage through parliament. The introduction of the DMCC would see large companies in breach of consumer laws (such as misleading consumers by engaging in greenwashing) face civil penalties of up to 10% of global turnover.
Conclusion
In summary, the FCA’s new anti-greenwashing rule aims to promote transparency, protect consumers and create a level playing field in an evolving market. Firms will need to consider carefully claims made about themselves and their products and services, as they will be subject to existing consumer protection law as well as existing FCA regulation and may also fall under the new rule. This potentially imposes a high risk for firms who want to brand themselves as sustainably focused.