New ‘anti-greenwashing’ rule comes into force
New ‘anti-greenwashing’ rule comes into force
New rules to protect financial services customers from ‘greenwashing’ claims come into force from today (31 May 2024).
The Financial Conduct Authority’s new anti-greenwashing rule (AGR), which applies to all FCA-authorised firms, is designed to ensure that consumers are protected from misleading sustainability-related claims, enabling them to make informed decisions that are aligned with their sustainability preferences.
All sustainability-related claims made by financial services companies about their products and services must be fair, clear and not misleading. Financial firms that fail to comply could face supervisory action by the regulator.
Commenting on the introduction of the new rules, Richard Weighell, Financial Services Advisory Partner at accounting and business advisory firm BDO LLP said:
“While the final guidance was only published last month, firms have had a significant amount of time to prepare for the introduction of the FCA’s anti-greenwashing rule. By now, they should have substantially completed their programmes of work to ensure sustainability-related claims in their communications are clear, fair and not misleading.
“Given the long lead time ahead of the introduction of the AGR, we expect the FCA to immediately be monitoring firms’ sustainability-related claims, taking supervisory action where necessary.
“The FCA’s final guidance refers to the four C’s. Any sustainability references should be correct and capable of being substantiated, clear and complete, and with any comparisons being fair and meaningful.
“In layman’s terms, firms will need to ensure they check any sustainability-related statements they are making and be able to justify them. This should include general statements on websites, as well as in product and service literature. These claims will need to be backed up with sufficient evidence to rationalise the disclosure.
“In our experience, firms that don’t think they’re making any claims about sustainability may be more at risk of inadvertently breaching the rule, as opposed to those firms that are well-aware of their sustainability claims.
“We have seen good practices adopted by many firms in preparation for the AGR, such as compiling inventories of sustainability-related claims, conducting greenwashing risk assessments and enhancing governance and oversight processes. However, it’s likely that some firms will have to play catch-up to avoid coming under regulatory scrutiny.”
Sasha Molodtsov, also a partner in BDO LLP’s Financial Services Advisory practice, said:
“It is also important to note that the AGR applies with respect to references to sustainability characteristics, which the FCA has explicitly specified includes both environment and/or social characteristics of a product or service. We have observed the common misconception that the AGR applies to environmental claims only.”
Further components of the FCA’s Sustainability Disclosure Requirements come into force later this year. From 31 July, firms will be able to begin to use four investment labels for products with sustainability objectives.
In advance of the introduction of the new fund labelling regime, firms will need to continue to prepare in advance, working out where they might be exposed and how they will mitigate any risks. BDO suggests that this could result in firms adopting a very cautious approach to avoid the possibility of regulatory censure, even where the products themselves may have genuinely sustainable characteristics.
ENDS
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