On 31st May 2024, the FCA’s Anti-Greenwashing rule came into effect. This is contained within the Handbook under ESG 4.3.1 and is encapsulated by the following:
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(1) This rule applies to a firm (whether it is undertaking sustainability in-scope business or not) which: (a) communicates with a client in the United Kingdom in relation to a product or service; or (b) communicates a financial promotion to, or approves a financial promotion for communication to, a person in the United Kingdom. (2) A firm must ensure that any reference to the sustainability characteristics of a product or service is: (a) consistent with the sustainability characteristics of the product or service; and (b) fair, clear and not misleading. |
Although the Sustainability Disclosure Requirements (SDR) are being extended to Portfolio Managers (including DFMs and advice firms who create their own portfolios) in December 2024 (see CP24/8), the anti-greenwashing rule applies to all firms as of 31st May 2024.
In a nutshell, the FCA wants to ensure that any reference to the sustainability characteristics of a product or service is fair, clear, and not misleading. To give firms more guidance on how this would apply to products purported to have sustainable characteristics, they outlined what fair, clear, and not misleading would mean in practice in FG24/3:
Sustainability references should be:
Many advisory firms may feel this doesn’t directly apply to them as they are not fund manufacturers, but it is important to ensure that you are aware that references to sustainable products or services within your website, IDD, brochures etc., would be in scope. The new rule even extends to how firms describe themselves (governance, targets, policies, etc.).
Industry bodies have appealed to the regulator to provide more examples of how the anti-greenwashing rule may impact firms, as the current guidance has been criticised of being woolly and too high-level in its application, particularly if firms could unwittingly fall foul of the new rule in ways that are not yet clear.
Greenwashing has already hit the headlines, with two adverts relating to climate change issued by HSBC in 2022 being banned by the Advertising Standards Agency (ASA) because they “omitted material information”, so this area is clearly under scrutiny.
Firms wishing to be active in this area need to tread very carefully, so it may be wise to keep a watching brief to see how things develop. Being first to the party may not be a good move in the long run!
Author - Thomas Purcell - Compliance Consultant
We recommend that your suite of client communications, include your website, is reviewed through the lens of anti-greenwashing. Is there anything that you are communicating that could be misconstrued?
As always, if you need help please contact us.