The FCA’s anti-greenwashing guidance – key takeaways

On 23 April 2024 the FCA published its finalised guidance (“Guidance”) on the anti-greenwashing rule (ESG Sourcebook 4.3.1R) ahead of the rule coming into force on 31 May 2024. This article recaps on what the anti-greenwashing rule entails and the key points to take away from the Guidance, including some examples. 

Recap – the anti-greenwashing rule

The anti-greenwashing rule is being introduced as part of the FCA’s sustainability disclosure requirements (“SDR”) regime. The rule requires FCA-authorised firms to ensure that their sustainability-related claims are fair, clear, and not misleading and they are consistent with the sustainability characteristics of the product or service. ‘Sustainability-related claims’ means claims made about the environmental or social characteristics of products and services. 

This will not be an unfamiliar concept to firms as requirements to ensure information is communicated to clients in a ‘fair, clear and not misleading’ manner have been in place for some time. The Guidance makes it clear that the anti-greenwashing rule is intended to complement and not override any other rules. However, it should provide the FCA with an explicit rule on which to challenge firms on their sustainability-related claims. 

The four ‘c’s for sustainability-related claims  

Sustainability references should be: 

1. Correct and capable of being substantiated.

2. Clear and presented in a way that can be understood.

3. Complete – they should not omit or hide information and should consider the full life cycle of the product or service.

4. Comparisons to other products or services are fair and meaningful.

We have provided a brief overview of each of these principles below alongside examples sourced from the Guidance. 

Correct and capable of being substantiated

Firms should make factually correct claims which ‘do not overstate or exaggerate a product or service’s sustainability or positive environmental and/or social impact.’ It is important that firms are able to evidence claims and regularly review claims to ensure that the evidence sitting behind them is still relevant. Where firms are relying on third parties for information used in claims, they should be critical in assessing when it’s appropriate to rely on third party data and research. Where evidence is specifically referred to in a claim, firms should consider making the evidence publicly available and easily accessible. 

Claims about sustainability should be transparent and straightforward, and firms should consider aligning to the intended audience, especially when using technical language. Importantly, the use of broad terms or general statements may be construed as unclear and confusing. The Guidance also states that firms should be aware of the ‘overall impression a visual presentation of a claim can create’. This includes the use of images, logos and colours alongside the sustainability characteristics of a product. 

Sustainability-related claims should not omit or hide information and firms should consider the full life cycle of the relevant product or service. Firms should not ‘cherry pick’ information and instead present claims in a balanced manner, not focussing solely on positive sustainability characteristics where other aspects of a product or service may not have the same impact. The Guidance calls this providing a ‘representative picture’ and this representative picture could include information about the firm itself.

The Guidance also adds that where claims are only true if certain conditions apply, this should be clearly stated. The recipient needs to be able to determine from the information available the veracity of the claim, so there’s an element of ‘truth, whole truth and nothing but the truth’ that needs to be applied.

Claims which compare sustainability characteristics should compare like with like and make clear how the comparisons are being made. For example, a claim could potentially be misleading where it is making market-wide comparisons but is in fact based on a narrow or ‘chosen’ sample. Firms should also be careful about the extent to which sustainability characteristics are highlighted when in reality the product or service is simply meeting a minimum standard of compliance with existing legal requirements. 

The FCA’s increasing scrutiny of sustainability related claims reflects a wider trend by regulators in the UK and financial regulators globally to tackle greenwashing. The FCA notes that feedback to the draft guidance was broadly positive, and firms will certainly welcome the additional examples and clarifications provided in the finalised guidance ahead of impending implementation. The examples show the FCA will be robust in setting standards for sustainability-related claims, including expecting continuous monitoring and clear explanations in financial promotions.

Freeths can advise on all aspects of the new SDR regime and more broadly, are experienced on advising on all legal frameworks underpinning environmental claims and managing greenwashing risk. Please contact the authors for further information.