FCA’s finalised guidance on the anti-greenwashing rule

In April 2024, the FCA published finalised guidance on its anti-greenwashing rule (hereafter “AGW”). The AGW rule and the accompanying finalised guidance became applicable from 31 May 2024 for all FCA authorised firms.

The AGW rule is part of a wider set of rules under the FCA’s Sustainability Disclosure Requirements, and applies to all FCA authorised firms. The rule requires that “all references to sustainability characteristics of products or services are consistent with the sustainability characteristics of the product or service and are fair, clear and not misleading”.

In the finalised guidance, the FCA provides key clarifications based on feedback received to the guidance consultation.

Whilst the FCA’s clarifications are useful and timely, firms will still be grappling with key challenges around consistent use of terminology, scoping and compliance monitoring amongst others.

This note sets out the key clarifications and some insights on key actions for firms.
 

Key clarifications

• Jurisdictional scope: the AGW rule applies when a firm: (i) communicates with clients in the UK in relation to a product or service; or (ii) communicates a financial promotion (or approves a financial promotion for communication) to a person in the UK.
• Product scope: the AGW rule applies in relation to financial products and services which FCA authorised firms make available for clients in the UK. This includes financial promotions that authorised firms communicate or approve for unauthorised persons (including for overseas products and services where the promotion is approved in the UK).
• Client scope: the AGW rule applies regardless of whether the firm is communicating to retail clients, professional clients, or another business. The FCA has said firms can adjust their communication depending on the end audience.
• Firm level claims: the AGW rule applies in relation to products and services, but firms also need to be mindful of other rules and expectations regarding firm level claims. Even though the AGW rule does not directly apply to firm level claims, the FCA has said that firms should consider how firm-level claims may be seen by consumers as part of the whole “representative picture” in the decision making process. In our view, when considering what representative picture is being conveyed, firms should, amongst other things, focus on whether firm level claims/information promise sustainability performance and characteristics over and above the claims in product level documents.
• Images: the AGW rule does not extend to the use of “visuals” in a context not intended to refer to, or describe, the sustainability characteristics of a product or service.
• Naming and Marketing Rule: firms subject to the naming and marketing rules for asset managers under the SDR must comply with those rules in addition to the AGW rule.
   

Key actions for firms

• Firms will need to consider which firm level claims or statements contribute to the “overall representative” picture in relation to sustainability claims about products and services. This will be a significant task if the firm has multiple firm level claims on its websites and in product marketing documents.
• Firms will need to be very clear about how they define sustainability related terms for specific products. The terms should be used consistently across documents and in verbal conversations. This might mean creating internal taxonomies and will require training all relevant staff.
• Firms need to consider where greenwashing risk should feature in their existing risk framework e.g. whether it should be an individual risk type or attached to an existing risk type. Applying greenwashing risk to existing risk management framework processes, such as RCSA, will help to identify the level of risk exposure that greenwashing poses to the firm and its clients. Subsequently firms can determine the level of people, processes and systems appropriate to mitigate the inherent risk exposure in line with the firm’s risk appetite.
• Colours, alongside logos and images, are included in the finalised guidance. Firms have been concerned about the specific use of colour and the FCA has not provided a specific example of how use of a colour might mislead. Consumer testing might help firms determine whether there is a consensus around how colours are perceived.
• Firms need to ensure that any monitoring of compliance with the AGW rule is “end-to-end” i.e. that it covers all types of communications including pre-contractual marketing, sustainability performance reporting and verbal communications, amongst others.
• Firms had been concerned about how to apply the AGW rule to claims about stewardship, given the limited influence on investee companies’ activities. The FCA has not provided any clarification on this. Firms will need to be careful not to overstate the expected impact of stewardship.