The Anti-Greenwashing rule – green devils in the detail?

All authorised firms will need to comply with the anti-greenwashing rule, part of the FCA’s Sustainability Disclosure Regime, by the end of May. Additional guidance provided by the regulator on the rule is still in draft following a consultation period which closed last month. But with only three months left, it’s an important reference point to understand what’s required and how you should prepare.

The guidance consultation was published in November alongside the release of the final rules for the Sustainability Disclosure Requirements and Investment Labels (SDR) (PS23/16). This additional guidance on the anti-greenwashing rule came as a response to the unprecedented feedback to the initial SDR consultation. The anti-greenwashing rule – originally set to be introduced upon release of the SDR policy statement – will now come into effect immediately on the 31st May 2024, along with the additional guidance.

The guidance consultation (GC 23/3) summarised the proposed guidance for the anti-greenwashing rule, which sets out that 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 not any comparisons to other products or services.

To put it simply, under the anti-greenwashing rule any reference to the sustainability characteristics of a product or service must: (i) be consistent with the actual sustainability characteristics of the product or service; and (ii) be fair, clear, and not misleading. The rule is set to apply to all communications with clients in the UK in relation to a product or service or when communicating financial promotions, or when approving financial promotions for communicating to a person in the UK.

The consultation closed on the 26th January, so we expect the FCA’s guidance on the anti-greenwashing rule to be released before the 31st May implementation date. Once finalised, the guidance should be used by firms to help ensure any sustainability claims about products or services comply with the rule.

Overall, the FCA expect the rule and guidance to impose minimal additional burden on firms, given existing requirements for firms in line Principle 7 (communications with clients).

What steps do I need to take before the May deadline?

First, we recommend reading the guidance as outlined in Annex 1 and making sure staff who need to know and understand the rule are clear on the requirements and how they apply to the firm’s business, products and services, and the types of sustainability claims that the firm makes. Where sustainability is a key component of communications, we suggest carrying out specific training on the rule with marketing, investor relations and sales teams.

We also advise updating existing policies and procedures, particularly on client communications and financial promotions to ensure that the anti-greenwashing rule is covered. Checklists used for preparing, reviewing and approving financial promotions should also be updated to include checks in relation to the anti-greenwashing rule. Current websites and client communications that will continue to be used after the 31 May deadline must be reviewed to make sure they remain compliant.

Firms that are in scope of the Consumer Duty should pay particular attention to the Customer Understanding Outcome in relation to sustainability claims and ESG data as both can be confusing for retail customers or investors fully to comprehend.

Some questions still remain, especially on how firms should approach brand advertising if it incorporates ‘ESG’ claims. And we’re seeing interesting debates on the practical impact of the new rules and guidance.

Whatever the final guidance concludes, it’s clear that greenwashing will come under scrutiny from May, and many anticipate a thematic review from the regulator to follow.

We can help

We have a team of ESG experts across our specialist sector teams to help you assess the impact of the broader SDR on your business and your products and ensure you are well placed to implement each of the rules when they come into force.

First published by Money Marketing.