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This week the UK’s regulator for asset management and fund operators, the Financial Conduct Authority (FCA) has published its Final Guidance for the Anti-Greenwashing Rul, which will form part of an anti-greenwashing rule coming into force on 31 May.

The FCA has released the guidance to help the industry “meet the standard”.

"With an estimated $18.4 trillion of ESG-orientated assets now being managed globally, the FCA is putting in place new Sustainability Disclosure Requirements."

As well as this, in November last year, the FCA launched its long-awaited final approach to the Sustainability Disclosure Requirements (SDR) and investment labels. The flagship scheme had been beset by postponements and myriad back and forth with the industry.

The anti‑greenwashing rule is one part of that package of measures.

In an announcement then, the FCA said: “With an estimated $18.4 trillion of ESG-orientated assets now being managed globally, the FCA is putting in place new Sustainability Disclosure Requirements and an investment labels regime after detailed engagement with a range of stakeholders, including industry, other regulators and consumer groups.”

“Tackling greenwashing is a priority for us,” said the FCA’s introduction to the guidance. “We want to protect consumers against greenwashing so they can make decisions that are aligned with their sustainability preferences. We also want to create a level playing field for firms in an evolving market, whose products and services genuinely represent a more sustainable choice and who are making genuine claims about their products’ and services’ sustainability characteristics.”

Greenwashing remains a serious topic. The FCA said the guidance and overarching greenwashing work would support “the long-term growth and competitiveness of the sector by helping businesses meet [sustainable finance] demand and ensuring consumers who invest in sustainability-related financial products can make informed decisions”.

The UK regulator was being watched closely by many for its take on it. Other jurisdictions that have made efforts against it have seen some problems emerge as the industry seeks to build up its sustainable frameworks. For example, one key facet of greenwashing fears comes from The EU’s Sustainable Finance Disclosure Regulation (SFDR), which have been seen as easily manipulated by some and could lead fund managers to murky waters. SFDR currently outlines protocols for Article 6, 8, and 9 funds to prevent greenwashing and make sustainability goals and claims more transparent. However, given the wide berth allowed by the SFDR definitions – especially for Article 8 funds – some are beginning to wonder if greenwashing is still an effective term for the current market.

"Companies face increasing pressure from investors, shareholders, consumers and regulators to operate ethically and sustainably, while remaining profitable."

Lucy Blake, London-based Partner and greenwashing legal expert at law firm Jenner & Block, said the FCA’s action is part of a wider trend of UK authorities taking action against greenwashing and the message to financial institutions (and other companies) is “clear” – that the “temperature is rising, and green statements need to be meticulously substantiated”.

"Companies face increasing pressure from investors, shareholders, consumers and regulators to operate ethically and sustainably, while remaining profitable,” said Blake. "However, the more companies say, the greater the risk of saying the wrong thing. Businesses that exaggerate their green credentials, even unintentionally, can face the wrath of regulators, who are armed with hefty fines. Firms can also suffer extensive reputational damage.”

She added that it may be tempting for companies to “batten down the hatches and say nothing at all to avoid scrutiny”.

“This is no easy way out. If companies remain tight-lipped about how they are mitigating environmental problems, they risk accusations of misleading investors and the market by obscuring the risks.

"Many companies find themselves walking a tightrope between greenwashing and greenhushing — damned for saying the wrong thing or damned for saying too little,” she said, which highlights the operational struggle companies could experience in making sure they are compliant to the new rules.

For fund operators, this means that regulations could soon get tighter and more specific, as managers search for better systematised processes and concrete data.

What’s in the FCA guidance?

The FCA added that if stakeholders trust the sustainability‑related claims that companies are making about their products and services, then “this may increase confidence in markets and the flow of capital into these products”.

The guidance is broken down into several categories including Scope, which “requires firms to ensure that any reference to the sustainability characteristics of a product or service is: consistent with the sustainability characteristics of the product or service, and is fair, clear and not misleading.”

The outlined rules say “Under the Anti-Greenwashing Rule, sustainability references should be: Correct and capable of being substantiated; Clear and presented accordingly; Complete with no hidden information and consider the full product/service lifecycle; and ensure Comparisons to other products/services are fair and meaningful.

“Confirming the anti-greenwashing guidance and proposals to extend the Sustainability Disclosure Requirements and investment labels regime are important milestones."

The Anti-Greenwashing Rule applies to financial products and services, including financial promotions communicated or approved for unauthorised persons - with this including overseas products and services where the promotion is approved in the UK.

It also covered application – which is summarised as “The Anti-Greenwashing Rule applies when firms communicate with UK clients regarding products/services or financial promotions to UK persons. This applies to all authorised firms irrespective of being in/out of scope for the Consumer Duty.”

The guidance also featured sections on Claims made by firms, which centred on usefulness, understandability, and whether they can be substantiated.

“Confirming the new anti-greenwashing guidance and our proposals to extend the Sustainability Disclosure Requirements and investment labels regime are important milestones that maintain the UK’s place at the forefront of sustainable investment,” said Sacha Sadan, Director of Environmental, Social and Governance, FCA on the guidance’s release. “We want to boost the integrity of the market and ensure people can make informed decisions with their money.”

As Blake concludes, she tells those in the orbit of the new rules, “The solution for companies caught in [the new guidance’s] crosshairs is honesty, transparency and a demonstrable commitment to positive change."

 

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