The U.K. Financial Conduct Authority (FCA) issued new guidance on how to comply with its upcoming anti-greenwashing rule, which is set to take effect May 31.
The rule is designed to protect consumers by ensuring sustainable products and services sold are accurately described, the FCA said Tuesday in a press release.
The FCA’s regulation package adopted last year contains two sets of rules and an investment labels regime all set to take effect during 2024.
The anti-greenwashing rule will apply to 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.
The rule applies when a firm “communicates with clients in the U.K. in relation to a product or service or communicates a financial promotion, or approves a financial promotion for communication, to a person in the U.K.,” the FCA explained in its guidance.
The regulator said sustainability claims must:
- Contain clear, understandable, and accurate information that can be substantiated;
- Be complete, in that the claim does not hide or omit important information;
- Be regularly updated to ensure accuracy for the lifecycle of the product or service; and
- Ensure comparisons made to other products or services are meaningful.
The guidance provides examples of wrong or misleading claims, as well as best practices. It notes the FCA can “take further action” if a firm makes a misleading claim on products, services, and/or sustainability practices in general.
Examples of problematic claims include investments being promoted as “fossil fuel free” despite contradictory terms and conditions, described as being all reviewed for sustainability characteristics when only some are, or marketing “green savings accounts” that give the impression all other accounts do the same.
Investment labels will be available to firms in disclosures to help consumers navigate the investment product landscape and differentiate between sustainability objectives, with labels that include sustainability impact, sustainability focus, sustainability improvers, and sustainability mixed goals.
The investment labels will be available starting July 31.
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