Last updated: 04 Jun 2024 11:00 Posted in:
New rules to tackle the increase in ‘greenwashing’ by UK firms have been put in place by the Financial Conduct Authority (FCA).
The new regulations came into force on 31 May, as part of a broader package of ESG (environmental, social and governance compliance) measures currently being implemented by the authority. Under the Sustainability Disclosure Requirements (SDR), companies will have to pass on sustainability labelling information to their clients.
The new rule intends to allow consumers to make informed decisions that are aligned with their sustainability preferences, and to create a ‘level playing field’ for firms which make genuine claims about the sustainability of their products.
The anti-greenwashing rule is consistent with the regulator’s drive to improve the clarity and accuracy of firms’ marketing, and complements the FCA’s Consumer Duty, which places an obligation on regulated firms to act in good faith towards consumers.
UK firms are also subject to separate rules on greenwashing from the Advertising Standards Authority (the ASA) and the Competition and Markets Authority, who have both published guidance relating to sustainability claims, and these regulatory bodies also have powers to take action.
The anti-greenwashing rule applies to all FCA regulated firms. These organisations must ensure that any references they make to sustainability characteristics are consistent with the sustainability characteristics of the product or service and are clear, fair and not misleading.
The FCA now expects any sustainability references in communications to be:
· Correct and capable of being substantiated.
· Clear and presented in a way that can be understood.
· Complete – communications should not omit key information and should take into account the product/service life-cycle.
· Fair and meaningful in relation to any comparisons.
The scope of the rule is not limited to retail business, which means products and services that are marketed only to professionals are also caught by the requirements. The FCA has published draft guidance (GC23/3) to help firms to understand the watchdog’s expectations under the anti-greenwashing rule.
The regulator said that UK authorised firms must review their existing customer communications to establish whether they are making sustainability-related claims. Firms should then take a look at how any sustainability-related claims may withstand scrutiny under the new regime, and how these can be adapted to comply with the new rule.
