The Advertising Standards Agency (ASA) and latterly the
Competition and Markets Authority (CMA) have been leading the UK
regulatory charge with respect to policing claims relating to the
sustainability characteristics of products and services. However,
the Financial Conduct Authority (FCA) now appears to be picking up
the baton.
What is the anti-greenwashing rule?
The FCA has introduced a new anti-greenwashing rule (AGR) and
finalised guidance to protect customers from misleading
sustainability claims. The AGR, which came into force in May 2024,
requires firms to ensure that any references to the sustainability
characteristics of a product or service are fair, clear and not
misleading. In summary, the references must be consistent with the
sustainability characteristics of the product or service
itself.
The FCA announced the AGR in November 2023 as part of a larger
package of measures on sustainability disclosure requirements and
investment labels. The AGR and accompanying guidance are consistent
with the CMA guidance on environmental claims and the requirements
of the ASA guidance on misleading claims and social responsibility
in advertising.
Why is the AGR being introduced?
Various sections of the FCA Handbook already require most firms to
ensure the information they communicate is fair, clear and not
misleading. This includes the FCA's Principles of Business
(PRIN), which apply in full or in part to most firms, the FCA's
Conduct of Business Sourcebook (COBS), which explains what
'fair, clear and not misleading' means in relation to
financial promotions for investments and the Consumer Credit
Sourcebook 3.3, which provides further context for consumer credit.
So why has the FCA introduced this new AGR?
In its guidance, the FCA explains that tackling greenwashing is a
priority, and that it has therefore introduced the AGR to clarify
to firms that sustainability‑related claims about their
products and services must be fair, clear and not misleading. The
FCA has also introduced the AGR to ensure that when it wants to
challenge firms and, if appropriate, take further action in
relation to any misleading sustainability-related claims about
their products or services, it can do so on the basis of an
explicit rule.
Who does it apply to?
In summary, the AGR applies to all FCA-authorised firms that
communicate:
– with clients in the UK in relation to a product or service,
or
– a financial promotion (or approve a financial promotion for
communication) to a person in the UK1.
The rule also has an element of extraterritorial reach: it applies
to financial promotions that authorised firms communicate or
approve for unauthorised persons, including for overseas products
and services, provided the promotion is approved in the
UK2.
What does this mean for FCA-authorised
firms?
The guidance sets out that the effect of the AGR is that firms'
sustainability references should be:
Correct and capable of being substantiated
In short, this means that any claims should be factually correct,
and the firm should not imply or exaggerate a product or
service's sustainability or positive environmental impact. The
FCA has clarified that claims can be misleading if they provide
conflicting or contradictory information. It is not sufficient for
firms to ensure compliance of a communication with the AGR only
when it is initially made. Instead, they are subject to an ongoing
duty to review their claims and any supporting evidence to ensure
the evidence is relevant as long as the claim is being
communicated.
Clear and presented in a way that can be understood
Firms should ensure that the meaning of all terms can be understood
by the intended audience. Any technical language should be defined
and explained for the intended audience where the meaning may be
unclear or difficult to understand. Broad and general statements
should be avoided.
The FCA has rightfully drawn a distinction between claims
communicated to a retail client as opposed to a professional
client; for the latter, firms may not need to include the same
level of detail or present their claims in the way they would be
presented to a retail client.
The FCA also draws attention to aspects like colours, logos and
images that can be an important part of the overall presentation of
a claim and advises firms to consider how these elements, taken
together, may be perceived by an audience when presented with other
sustainability characteristics of a product or service.
Complete
Important information should not be hidden or omitted, and firms
should consider the full lifecycle of the product or service. Where
claims are true only if specific conditions apply, these should be
clearly stated. Any limitations of information, data or metrics
used in a claim should be clearly and prominently disclosed. It is
also important for firms to ensure that claims are presented in a
balanced way, such that the positive sustainability impacts of a
product or service are not highlighted in a way that disguises any
potential negative impacts on sustainability.
The guidance also urges firms to consider the lifecycle of a
product or service when making sustainability-related claims and
ensure that they base their claims on the full lifecycle of the
product or service.
Firms should also consider whether information about the firm
itself may be considered part of the representative picture of a
product or service; if so, firms should ensure that those claims
meet the relevant rules and expectations so that the overall
perception is fair, clear and not misleading.
Any comparisons to other products are fair and
meaningful
Any claims a firm makes when comparing a product or service to one
of their previous versions or to that of a competitor should enable
the audience to make informed choices about the products or
services.
Any claims comparing products or services should make it clear what
is being compared, and how the comparison is being made. Claims
that make market-wide comparisons that are based on a limited
sample have the potential to mislead their audience.
What will potential FCA enforcement action look
like?
The FCA will take its usual supervisory and enforcement approaches
in relation to any breach or potential breaches of the AGR.
What should firms do now?
The guidance is prescriptive and outlines a range of factors that
firms should consider when making any claims about the
sustainability of their products or services and/or in relation to
financial promotions. Crucially, firms need to consider how
different aspects of their claims, taken together, could be
interpreted.
While firms should already be ensuring that their claims are
'fair, clear and not misleading' under existing FCA
requirements, the introduction of the AGR and accompanying guidance
ought to prompt firms to review and reconsider any existing
sustainability claims in relation to their products or
services.
Footnotes
1 ESG 4.3.1R
2 FG24/3: Finalised non handbook
guidance on the Anti Greenwashing Rule (fca.org.uk) paragraph
2.5
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