The UK Financial Conduct Authority’s (FCA) anti-greenwashing rule (Rule) came into effect on 31 May 2024 and applies to all FCA-authorised firms.
The Rule requires that references made to the sustainability characteristics of a product or service are:
- consistent with the sustainability characteristics of the product or services and;
- clear, fair and not misleading.
The Rule is of broad application, which means that it is not limited to firms that engage in sustainable business and applies to all FCA regulated firms that communicate to both professional and retail clients.
The FCA has published guidance to help FCA-authorised firms understand the FCA’s expectations under the Rule.
The new rule is designed to protect consumers by ensuring sustainable products and services they are sold are accurately described and therefore clients have transparency about the products they are investing in.
The proposed labelling and Sustainability Disclosure Requirements (SDR) for portfolio managers include:
- product labels to help consumers understand what their money is being used for; and
- naming and marketing requirements so products can only be described as having positive outcomes on the environment and/or society when those claims can be backed up
Firms communicating to UK retail clients must meet their existing Consumer Duty obligations and will therefore need to test that communications are likely to be understood by clients and meet their information needs. Investment managers with retailisation platforms may need to bear this in mind.
The finalised guidance
Broadly, the FCA expects that any ‘sustainability’-related claim or reference in relevant material should:
- be correct and capable of being substantiated. Therefore it must be factually correct, not overstated or exaggerated;
- be clear and presented in a way that can be understood. Firms must explain things in a transparent and straightforward way; technical terms explained;
- be complete – they should not omit or hide important information that might influence decision-making. The FCA specifies that it should convey a representative picture of the product or service; and
- be fair and meaningful in relation to any comparisons to other products or services, for example it should enable the communication’s audience to make informed choices about what .
Firms should review their investor communications as appropriate to ensure compliance with the anti-greenwashing rule and guidance and should ensure that existing measures taken to substantiate claims are documented in their policies and procedures and are sufficient.
For further information on this topic or on any other legal area, please contact John Szepietowski or Kay Stewart at Audley Chaucer Solicitors on 01372 303444 or email admin@audleychaucer.com or visit our Linkedin page.
This information was correct as of June 2024