On 23 April 2024, the FCA published its final guidance on the new anti-greenwashing rule, which will apply to all FCA authorised firms from 31 May 2024. This rule is part of the new Sustainability Disclosure Requirements (SDR) regime and underlines the increased regulatory focus on sustainable finance. All FCA authorised firms will need to take steps to implement, and to ensure ongoing compliance with, this new anti-greenwashing rule.

This article provides an overview of the rule, its implications, and the necessary steps for compliance.

1. What is the new anti-greenwashing rule?

The new anti-greenwashing rule states that FCA authorised firms must ensure that any reference to the sustainability characteristics of a product or service is:

  • consistent with the actual sustainability characteristics of that product or service; and
  • is fair, clear, and not misleading.

“Sustainability characteristics” includes both environmental and social characteristics. This new rule represents an important development in regulatory efforts to address misleading claims regarding the environmental and social aspects of financial products and services.

2. Who will it apply to?

The new rule will apply to all FCA-authorised firms (and not just the fund managers that are in scope of other more detailed parts of the FCA ESG / sustainability regime).

The new rule will apply where these authorised firms:

  • communicate with a client in the United Kingdom in relation to a product or service; or
  • communicate a financial promotion (or approve a financial promotion) to a person in the United Kingdom.

I.e. the rule extends to all FCA-authorised firms that make claims related to sustainability about products and services. This broad application highlights the FCA’s commitment to building a culture of integrity and accountability across the financial services industry.

3. What do firms need to do?

All FCA authorised firms will need to take action to ensure that they implement the new anti-greenwashing rule before 31 May 2024. Firms will also need to ensure ongoing compliance with the rule. In particular, firms should:

  • Consider sustainability characteristics: firms should evaluate the sustainability characteristics of their products and services. This entails an assessment of environmental impact, social responsibility, and corporate governance practices. Firms should do this before 31 May 2024 and on an ongoing basis.
  • Review and update documentation: firms should review and update all of their customer-facing documentation before 31 May 2024 (this includes T&Cs, websites, and any other marketing materials).
  • Enhance systems, processes, and controls: firms should enhance their systems, processes, and controls to integrate the new rule into their governance frameworks and training programs (for example, it is crucial that firms have evidence to back up their claims about the sustainability characteristics of their products and services).
  • Documentation: firms should retain records to show that they have done each of the items above. This is particularly important as the FCA has signalled its intent to take action against non-compliant firms.

4. Timeline for implementation and other FCA ESG rules and requirements

The FCA decided on an earlier implementation date for the anti-greenwashing rule than the rest of the Sustainability Disclosure Requirements (SDR) regime. The new anti-greenwashing rule will therefore apply to all FCA authorised firms from 31 May 2024.

The SDR regime also includes detailed rules on other items (including investment labels, naming and marketing, and disclosures e.g. disclosure of climate-related financial information) that will apply to certain types of FCA-authorised firm from 31 July 2024 (some of these rules will not apply until as late as December 2026). This phased implmenetation of the SDR regime will not impact the applicability of the new anti-greenwashing rule from 31 May 2024.

Please do get in touch if you’d like further information on the applicability of the SDR regime.

5. How can I get further information?

If you would like more information on any of the above, please get in touch with Mardi MacGregor or Romans Vikis from the Fox Williams team.

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