FCA adopts rule package aimed at thwarting greenwashing

The regulation package, confirmed by the FCA and announced Tuesday, contains two sets of rules and an investment labels regime all set to take effect during 2024.

The anti-greenwashing rule will apply to all FCA-authorized firms who make sustainability-related claims about their products and services. The regulator will pay scrutiny to how terms like “ESG,” “green,” and “sustainable” are used in marketing to ensure any such claims are fair, clear, and not misleading.

Serious violations of the rule could result in an enforcement action, the FCA noted.

Investment labels will be available to firms in disclosures to help consumers navigate the investment product landscape and differentiate between different sustainability objectives. The regime offers four different labels with specific requirements:

• Sustainability impact
• Sustainability focus
• Sustainability improvers
• Sustainability mixed goals

The second set of rules in the package will target naming and marketing for investment products not labeled to ensure firms’ sustainability claims are proportionate and not exaggerated. The rules will only apply when sustainability-related terms are being used for products marketed to retail investors.

“We’re putting in place a simple, easy-to-understand regime, so investors can judge whether funds meet their investment needs,” said Sacha Sadan, director of environmental, social, and governance at the FCA, in the regulator’s press release. “This is a crucial step for consumer protection as sustainable investment grows in popularity. By improving trust in the sustainable investment market, the U.K. will be able to maintain its position at the forefront of sustainable finance and capture the benefits of being a leading international center of investment.”

The anti-greenwashing rule will take effect May 31, 2024. The investment labels will be available from July 31, 2024. The naming and marketing rules come into effect Dec. 2, 2024.