The final guidance clarifies the scope and application date of the rule, and answers questions around good practice and accessing third-party data.

On 23 April 2024, the FCA published its final guidance (FG23/4) on its new anti-greenwashing rule, which comes into force on 31 May 2024. The anti-greenwashing rule will require all authorised firms to ensure that any reference they make to the sustainability characteristics of their financial products and services are consistent with the sustainability characteristics of the product or service and are fair, clear, and not misleading. This rule forms part of the FCA’s broader sustainability agenda and was finalised alongside the FCA’s Sustainability Disclosure Requirements (SDR) and investment labelling regime in November 2023 (see this Latham Client Alert for more information).

The final guidance closely follows the draft guidance. The primary areas of feedback to the draft guidance related to requests for additional examples and clearer explanations of the FCA’s expectations, particularly regarding the scope of the anti-greenwashing rule and its interaction with other parts of the FCA Handbook. In this blog post, we summarise the key areas to note with respect to the final guidance.

Scope

The FCA confirms that the anti-greenwashing rule captures any references to the sustainability characteristics of a firm’s financial products and services. The rule applies when a firm:

• communicates with clients in the UK in relation to a financial product or service;
• communicates a financial promotion to a person in the UK; or
• approves a financial promotion on behalf of unauthorised persons.

The FCA notes that for most firms, the rule does not introduce a new requirement, as they should already be ensuring their sustainability-related claims are “fair, clear, and not misleading” under existing FCA requirements. In response to questions regarding whether the rule applies to claims made about the firm itself, or firm-level reports, the FCA explains that such claims are covered by other rules and expectations, although firms should consider how such claims may be viewed as part of the “representative picture” in relation to a product or service. The FCA also highlights that firms should consider guidance from other regulatory bodies like the Competition and Markets Authority (CMA) and the Advertising Standards Authority (ASA), and how the anti-greenwashing rule interacts with the broader principles within the FCA Handbook.

Two New Examples of Good Practice

Within their feedback to the draft guidance, firms expressed concerns about the risk of greenwashing associated with supporting high-emitting companies that are gradually seeking to reduce their carbon emissions. In response, the FCA provides an example of good practice that illustrates a scenario involving a fund manager that releases marketing material outlining the qualities it seeks in its investment in sustainability-linked bonds. The qualities include metrics linked to the company’s transition plan and regular reporting against these metrics, which are independently verified. The FCA also includes an example to help demonstrate how claims about social characteristics may be considered misleading.

Reliance on Third-Party Data

Firms often face challenges in accessing reliable and high-quality data for substantiating and/or reporting on ESG matters (e.g., data for Scope 3 emissions, social impact metrics, and supply chain information). In many cases, firms may need to rely on third-party data, which may not always be consistent or comprehensive. The FCA notes in its feedback statement that when firms rely on third-party data, they should consider “the appropriateness of relying on data, research, analytical resources and other information provided by third parties to substantiate the claims they are making”. Firms should review their current reliance on third-party data and assess whether the due diligence and disclosure standards applied in-house will withstand scrutiny. While the level of due diligence will vary, firms may want to check whether their third-party data provider is a signatory to the voluntary Code of Conduct for ESG Ratings and Data Products Providers published at the industry level in December 2023. When firms do rely on such third-party data, they should record in writing the appropriateness of doing so, for example, as part of the product approval process.

Application Date

While most respondents reacted positively to the anti-greenwashing rule and guidance coming into force on 31 May 2024, others expressed concerns that the timeline would be insufficient to review their sustainability-related claims and ensure compliance. In response, the FCA again highlights that it is not introducing a new requirement, as firms should already be complying with the “fair, clear and not misleading” rule under existing FCA requirements. The FCA notes that it had already provided firms with an additional six months to ensure compliance with the new rule, as it had originally proposed that the rule would take effect immediately when it was published.

Next Steps

All authorised firms must comply with the new anti-greenwashing rule from 31 May 2024. The FCA expresses its commitment to combating greenwashing by stating that it will continue to provide industry support on the implementation of the regime through stakeholder engagement. Notably, the FCA states that it will ensure ongoing review of the guidance by considering areas that may require development and by adding sector-specific examples. Firms should note that the regulator may take supervisory or enforcement action if a risk of consumer harm arises or serious misconduct may have occurred.

This post was prepared with the assistance of Christine Tun in the London office of Latham & Watkins.