FCA finalises anti-greenwashing rule effective May 2024

The Financial Conduct Authority’s anti-greenwashing rule took effect today, 31 May, requiring all authorised firms to ensure sustainability-related claims are fair, clear and not misleading. The rule, introduced in Policy Statement PS23/16 on Sustainability Disclosure Requirements and investment labels published on 29 November, forms part of the regulator’s wider UK sustainability disclosure and labelling regime.

What changed • A new general anti-greenwashing rule has been added to the FCA Environmental, Social and Governance Sourcebook as ESG 4.3.1R. • The rule applies to all FCA-authorised firms and to all sustainability-related claims about products or services, regardless of client type. • The scope covers statements, strategies, targets, policies, information and images used in sustainability communications. • Finalised guidance FG24/3, published at the end of April 2024, sets out the FCA’s expectations on how firms should comply. • The rule also applies to firms approving financial promotions for unauthorised entities. • The FCA has implemented the rule ahead of the rest of the SDR and labelling regime.

Scope and content of the new rule

The anti-greenwashing provision is codified as ESG 4.3.1R in the FCA’s Environmental, Social and Governance Sourcebook. It requires any reference to the sustainability characteristics of a product or service to be fair, clear and not misleading, creating a specific conduct standard for ESG-related communications.

The FCA has given the rule broad application, stating that it applies to all FCA-authorised firms making any kind of claim about the sustainability characteristics of any of their products or services. This applies even where those products or services do not have explicit sustainability-related objectives or strategies and are not otherwise in scope of the Sustainability Disclosure Requirements regime.

The rule applies irrespective of client categorisation, with no carve-out for communications directed solely at professional investors. It also extends to all regulated financial services firms that are responsible for approving financial promotions of unauthorised firms, bringing approver entities within scope for sustainability claims they sign off.

Breadth of communications covered

The FCA has framed the rule to cover a wide range of materials used to promote or describe sustainability features. According to the Policy Statement and related materials, the scope includes, but is not limited to, statements, assertions, strategies, targets, policies, information and images used in connection with sustainability claims.

This means the requirement applies across written disclosures, marketing materials, product documentation and visual content where sustainability characteristics are referenced. Guidance and expectations

To support implementation, the FCA published guidance consultation GC23/3 on the anti-greenwashing rule alongside the final SDR framework. The feedback period for GC23/3 closed on 26 January, allowing stakeholders to comment on the proposed expectations before the rule went live.

Following the consultation, the FCA issued finalised non-handbook guidance FG24/3 at the end of April 2024. The guidance is intended to help FCA-authorised firms understand the FCA’s expectations under the anti-greenwashing rule, providing additional detail on how the fair, clear and not misleading standard should be applied to sustainability claims.

Implementation timing

The FCA originally intended the anti-greenwashing rule to come into effect immediately upon publication of Policy Statement PS23/16 in November 2023. Following feedback, the regulator pushed back the start date and set 31 May 2024 as the implementation date.

The FCA stated that this later date was chosen to give firms the opportunity to gap analyse their current processes and procedures against the new rule and guidance. At the same time, the regulator decided on an earlier implementation date for the anti-greenwashing rule and guidance than for the rest of the Sustainability Disclosure Requirements regime.

Position within the FCA’s ESG strategy

Policy Statement PS23/16, which set out the SDR and investment labels framework, had been delayed from its originally planned release in the first half of 2023. In the foreword to that statement, the FCA described “raising the bar with these new rules” as “a crucial cornerstone” of its ESG strategy, showing the central role of the anti-greenwashing rule and related measures in its approach.

Background

On 29 November 2023, the FCA published PS23/16, finalising its framework for a UK sustainability disclosure requirements and investment labelling regime after a delay from the first half of 2023. The anti-greenwashing rule, now in force, is one of the core elements of that package, sitting alongside product labels and disclosure requirements as part of the regulator’s wider ESG agenda.

--- Sources: https://www.fca.org.uk/firms/climate-change-and-sustainable-finance https://www.dechert.com/knowledge/onpoint/2024/5/fca-s-anti-greenwashing-rule-and-related-guidance---a-summary.html https://www.ashurst.com/en/insights/uk-sustainability-disclosure-and-anti-greenwashing-rules-finalised/