UK Anti-Greenwashing Rule Consultation January 2024
As part of the FCA’s newly released Sustainability Disclosure Requirements (SDR), the regulator has produced proposed guidance on its “expectations for FCA-authorised firms making claims about the sustainability of a product or service”.
A consultation is now underway to gain industry insight into the proposed rule, open until 26th January 2024. Final guidance will be published in early 2024, and the rule is expected to come into force on 31st May 2024.
Background
Addressing greenwashing is a core objective of the FCA and the SDR. The FCA has frequently stated that firms must be fair, clear and not misleading about the sustainability of their products and services. The anti-greenwashing rule supports this goal.
Whilst other elements of the SDRs apply to a subset of UK firms or funds, the anti-greenwashing rules apply to all FCA authorised firms.
How It Will Work
The anti-greenwashing rule applies to all communications about financial products or services where they refer to environmental and/or social characteristics of those products and services. The FCA notes that sustainability-related references include statements, assertions, strategies, targets, policies, information, and images.
The guidance explains that sustainability claims must 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.
| Claim | Example | What To Do |
|---|---|---|
Claims should be correct and capable of being substantiated. This is all about accuracy of description, and not overstating or exaggerating the sustainability of a product or service. Firms must be able to substantiate their claims with “robust, relevant, and credible evidence”. |
In the promotions for a fund, an investment manager prominently displays a claim that all investments are reviewed for their sustainability characteristics. However, these sustainability characteristics are not actually a significant factor in the investment manager’s decisions and not all investments are systematically reviewed in the investment process. The investment manager is overstating the extent to which they consider the sustainability characteristics of investments in the fund and this claim is not capable of being substantiated. |
Review all sustainability claims made in your communications, ensuring they are accurate, and you can evidence them. Ensure a monitoring process is in place to regularly review all claims. |
Claims should be clear and presented in a way that can be understood Language used to describe sustainable products and services must be “transparent and straightforward”, with technical elements clearly explained and vague or broad terms avoided. Images, logos and colours must also be used carefully and align to accurate descriptions, that do not mislead. |
A firm places a large image of a rainforest at the top of its webpage about its savings accounts, with an overlay of text that reads ‘Sustainable Savings’. The webpage includes its ‘Green Savings Account’ alongside a list of other savings accounts. Its ‘Green Savings Account’ uses deposits to lend to companies to fund sustainable projects, while its other savings accounts do not. In this case, the image of the rainforest on the savings account webpage coupled with the text that reads ‘Sustainable Savings’ may give its audience the impression that the firm will use deposits in all savings accounts to help create positive change. If only deposits in its ‘Green Savings Account’ are ringfenced to fund sustainable projects, the use of both words and images in this way is potentially misleading as it gives the impression that the bank invests more into sustainable projects than it actually does. |
Check all websites, reports, marketing slide decks and other communications to ensure they are clear and images and colours (e.g., nature-based imagery and green coloured logos and text) are not used inaccurately or misleadingly, i.e. as in the example, positioned near to non-sustainable products. Create a protocol for checking all newly published marketing materials against the rule before it is signed off/used externally. |
Claims should be complete – they should not omit or hide important information Avoid cherry-picking information and provide a clear and full picture of both positive and negative sustainability impacts. Avoid omitting or hiding information and explain any special conditions or caveats, where they apply. Explain any incomplete information or limitations relating to data or metrics. |
A commonly tracked benchmark claims to be ‘sustainable’, by excluding companies with ESG ratings ‘lower than 3’. The benchmark administrator does not specify what the rating aims to assess, for example, whether it assess sustainability-related risks or impact. It also does not specify the scale the rating uses, which could be 1-10 and does not disclose the rationale regarding why an ESG score of 3 was chosen as the appropriate threshold. It could, in reality, not be a high bar, as standards may vary in some markets. The benchmark administrator does not provide its audience with complete information and as a result does not make it clear whether and how the product is delivering sustainable outcomes in practice. This could result in users and ultimately end-investors being misled as to the sustainability outcomes of the product. |
Where external data is being used, review or request information on methodologies, checking for omissions and ensuring you fully understand how they work and what is included/left out. Review how you’re explaining what data you use and how you use it, ensuring you provide a complete account of all aspects, not just the best bits, e.g., in relation to the life cycle of a product or service. |
Comparisons should be fair and meaningful Where comparisons are made, compare like with like and give clear explanations of what you are comparing and how you’re approaching it. Avoid market-wide comparisons based on limited samples. Avoid making claims to sustainability when a product or service merely meets the minimum standard of compliance with existing legal requirements. |
A firm claims that by purchasing their investment bond, investors will ‘reduce emissions’ more than through the purchase of any other investment bonds on the market. However, the firm does not make it clear to its audience that this comparison refers only to Scope 1 emissions (as opposed to all emissions – Scope 1, 2 and 3) and was based on a limited sample at a particular date in time. The market participant has picked information which means it paints a better picture of its investment bond compared to others on the market. The claim does not make clear how the comparison is being made or its limitations. The market participant needs to make the limitations of the comparative claim clearly, and in doing so, will need to explain what is meant by Scope 1, 2 and 3 emissions if this technical language is not widely understood by the intended audience. |
Review all descriptions of comparisons, ensuring your methodology is clearly stated and the comparison is fair and equal. Check you can provide evidence to substantiate comparisons. |
For further assistance on the FCA’s greenwashing rule or any other ESG related topic, please get in touch.
Further Reading
