Insights Greenwashing: UK Financial Conduct Authority seeks views on its guidance

The FCA Handbook (ESG 4.3.1R) provides that sustainability-related claims about products and services must be fair, clear and not misleading, and consistent with the sustainability characteristics of the product or service. The rule applies to all FCA-authorised firms who make sustainability-related claims about their products and services and firms that approve financial promotions for unauthorised persons, for communication in the UK, whether claims are addressed to individuals or businesses. Sustainability-related references can be present in, but are not limited to, statements, assertions, strategies, targets, policies, information and images. The FCA refers to “sustainability characteristics” as “environmental or social characteristics” so may include claims relating to climate change, biodiversity, social issues or corporate social responsibility.

The Financial Conduct Authority (“FCA”) is seeking input on draft guidance on the application of the rule, the purpose of which is to provide clarity on the FCA’s expectations. The FCA states that the rule and guidance are needed to avoid the increasing number of sustainability claims that are exaggerated, misleading and unsubstantiated, so-called “greenwashing,” to create a level playing field between businesses thereby ensuring that consumers can make informed choices.

The draft guidance states that sustainability claims must be correct and capable of being substantiated, must be clear and presented in a way that can be understood, must not omit or hide important information, and comparisons should be fair and meaningful. The draft guidance provides explanation for each of these requirements followed by illustrative examples.

The guidance reminds users that sustainability claims are also subject to other requirements including those imposed under UK consumer law and the Codes of the Advertising Standards Authority.

The FCA proposes that the guidance will come into force on 31 May 2024.

For more information, including on how to respond to the Consultation which closes on 26 January 2024, click here.