New anti-greenwashing rule

In November 2023, the Financial Conduct Authority (FCA) introduced a series of new measures in a bid to tackle greenwashing and increase the transparency over claims regulated firms make about the sustainability of their products and services offered to consumers. 

Greenwashing refers to a practice where false or misleading claims are made about a product or service that implies they are more environmentally sound than they actually are.

One of the measures introduced by the FCA is a new ‘anti-greenwashing rule’ (AGR) contained in the FCA’s Environmental Social and Governance (ESG) Sourcebook which came into effect on 31 May 2024. 

The AGR applies to all firms who are either: 

• communicating with clients in the UK in relation to a product or service; or
• who are communicating a financial promotion to; or
• approving financial promotions for communication to, a person in the UK. 

Firms must now ensure that when they refer to the sustainability characteristics of their products and services, those references must be consistent with the actual sustainability characteristics of that product or service. Any references made must also be fair and clear and should not be misleading. 

It is important to note that the AGR does not apply to references made about firms generally.

In the context of the AGR, ‘sustainability characteristics’ means the environmental and/or social characteristics of a product or service. 

Impact of the AGR 

The AGR will inevitably require firms to pay closer attention to the claims they make about the sustainability of their products and services to ensure that they are accurate. 

To help firms better understand the AGR and remain compliant, the FCA has recently published guidance on the new rule. The guidance contains useful information for firms and practical examples of how to comply with the rule, as well as examples of when firms may fall foul of it. 

According to the published FCA guidance, the effect of the AGR essentially means sustainability references must be: 

• Correct and capable of being substantiated;
• Clear and can be understood; 
• Complete – important information should not be hidden or omitted, and firms should consider the full ‘life cycle’ of the product or service; and 
• Comparisons made to other products or services must be fair and meaningful. 

It is worth noting that a ‘reference’ is not limited to statements made about products and services. 

Interestingly, references extend to firm’s marketing and may also include images, logos and colours if they are being used by firms to refer to, or describe the sustainability characteristics of a product or service. 

The key message from the FCA is that the overall impression the references give to consumers will be considered.  

If firms do find themselves falling foul of the AGR, they may be subject to action taken by the FCA. 

Practical steps

In order to mitigate their risk of falling foul of the AGR, firms must give careful consideration to all of the relevant references which are being made about the sustainability of their products and services and ensure that they stand up to scrutiny. 

Such consideration will require careful review on a case-by-case basis of each reference to ensure compliance with the AGR which may be a burdensome task for some firms.