31 May 2024

The FCA’s new anti-greenwashing rule comes into force on 31 May 2024 and will apply to all firms that make claims in relation to the sustainability characteristics of their products or services.  The rule requires that any such claims are consistent with the sustainability characteristics of the product or service, and are fair, clear and not misleading. 

Consumer protection

There is significant consumer interest in sustainable products and the clear aim of the new rule is to protect consumers and enable them to make informed financial decisions that are consistent with their sustainability preferences. 

The FCA has recently issued further guidance on the scope of the new rule and the FCA’s expectations ahead of the implementation date. The guidance also comes into force on 31 May 2024 and is intended to assist firms to understand and implement the new rule. 

Key take-aways

Key points to note from the guidance include:

• clarification that the term ‘sustainability characteristics’ refers to the environmental or social characteristics of a product or service (with ‘governance’ being an enabler);
• the rule applies where a firm communicates with clients in the UK in relation to a product or service or communicates (or approves) a financial promotion in the UK (including approvals for overseas products or services);
• the rule applies with respect to references to the sustainability characteristics of products or services, and firms are subject, in addition, to other rules governing sustainability related claims they make about themselves;
• the range of communications caught by the rule is broad and would include statements, assertions, strategies, targets, policies, information, and images relating to a product or service;
• the new rule complements and is consistent with (and does not substitute or overrule) other fair, clear and not misleading obligations and the Consumer Duty; 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 CMA’s Green Claims Code).

The guidance provides further clarity, illustrated with practical examples, regarding what the new rule means in practice, focused around the key concepts of sustainability references being (1) correct, (2) clear, (3) complete, and (4) compared to other products or services in a way that is fair and meaningful:

• Correct - Sustainability related claims should be factually correct and true and not exaggerated. Firms should be able to substantiate claims with robust and credible evidence that remains relevant on an ongoing basis while those claims are being communicated.
• Clear - Sustainability related claims should be transparent and straightforward. If technical language is used, firms should consider whether it is capable of being understood by the intended audience. Where terminology is not widely understood, it should be explained. Firms should not use terms that might give the impression that a product or service has sustainability characteristics that it does not have.
• Complete - Important information that might influence consumer decision-making must not be omitted or hidden and, where sustainability related claims may be subject to conditions, these should be clearly and prominently stated. Firms must also disclose the limitations of any information, data or metrics used in a sustainability related claim.
• Comparisons - Claims comparing the sustainability related characteristics of a product or service must be fair and meaningful. Comparisons should make clear what is being compared, and how, and compare like with like. Comparisons should assist consumers to make informed choices. 

Visuals

The guidance clarifies the relevance of images, logos, and colours.  It states that firms should be aware of the overall impression a visual presentation of a claim can create and consider how images, logos and colours together may be perceived by the audience when presented alongside other sustainability characteristics of a product or service. Risks may arise where sustainability claims are undermined by visuals which convey a different or inconsistent impression. The guidance does not extend to the use of images, logos, and colours where they do not refer to the sustainability characteristics of a product or service, but notes that other rules may still apply in this context.

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 against companies 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.

The new anti-greenwashing rule is part of a package which also includes the Sustainability Disclosure Requirements and the Investment Labels Regime. You can read our earlier blogs about these measures here and here.