Businesses must now keep to a set of four principles so their statements about how sustainable or environmentally friendly their products are do not mislead customers or investors.
It follows proposals outlined by the Financial Conduct Authority (FCA) in November 2023, which led to final guidance being set out in April. And it forms part of the wider Sustainability Disclosure Requirements (DRS) for investments.
The regulator said the new guidance is in place “to protect consumers against greenwashing so they can make informed decisions that are aligned with their sustainability preferences.”
This came as the financial regulator found some claims made by businesses “may be exaggerated, misleading, and unsubstantiated”, as an increasing number of companies shared their sustainability triumphs.
Four rules firms need to adhere to
From today (31 May 2024), firms who communicate with clients in the UK about a product or service, advertise a financial promotion or approve a financial promotion to a person in the UK need to adhere to the rules.
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All FCA-regulated firms need to make sure their sustainability claims are:
- Correct and capable of being substantiated
- Clear and presented in a way that can be understood
- Complete – they should not omit or hide important information and should consider the full life cycle of the product or service
- Fair and meaningful when making comparisons to other products or services
Meanwhile, the requirements for portfolio investment managers also aim to remove any inconsistency surrounding phrases like ‘green’ and ‘ESG (Environmental, Social and Governance) standard’.
The FCA noted last November: “With $18.4trn of ESG-orientated assets now being managed across the world, it was time to put in place new requirements around disclosure, as well as a labels regime to make these terms more understandable.”
The DRS rules include:
- Product labels to help consumers understand what their money is being used for
- Naming and marketing requirements so products can only be described as having positive outcomes on the environment and/or society when those claims can be backed up
‘Examples will help firms market products in the right way’
Sacha Sadan, director of ESG at the FCA, said: “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.”
“Our good and poor practice anti-greenwashing examples will help firms market their products in the right way. We continue to work closely with the [Advertising Standards Authority] ASA and Competition and Markets Authority [CMA] to address greenwashing.
Sadan added: “Consumers care about investing in products that have a positive impact on the planet and people. That’s why we want to boost the integrity of the market and ensure people can make informed decisions with their money.”
