Financial Companies Mulling the Impact of the UK’s FCA Anti-Greenwashing Rule


The UK’s Financial Conduct Authority (FCA) has finalised its guidance on the Anti-Greenwashing Rule. This applies to all firms’ communication in the UK of a financial product or service’s sustainability characteristics.

The anti-greenwashing initiative is geared towards fostering the long-term development and competitive edge of the sector by aligning business offerings with consumer expectations and enhancing the transparency of financial products that are centred on sustainability.

Greenwashing is the practice of representing products as being more sustainable or environmentally friendly than they really are.

The guidance comes into legal effect in less than 5 weeks and requires that any reference to sustainability characteristics must be “capable of being substantiated” and “complete”. The regulation aims to safeguard consumers by guaranteeing that the sustainability claims made about products and services are truthful and accurate. It dictates that substantiating a claim means evidence can be provided to show that a claim was “accurate at the time it was made” and that this is an “ongoing” requirement, warning “firms should think carefully about whether they have the appropriate evidence to support their claims”.

“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,” said Sacha Sadan, director of environmental, social, and governance at the FCA.

The guidance on the anti-greenwashing rule for all regulated companies is the opening gambit of the upcoming sustainability disclosure regime being rolled out by the FCA. The FCA is also is deliberating on the expansion of the sustainability framework to include portfolio managers. Their consultation paper contains their proposals to extend the Sustainability Disclosure Requirements (SDR) and investment labels regime to portfolio management services. The proposed requirements for portfolio managers would mirror the ones implemented for asset managers last November, including product labels that clarify the use of consumer funds and strict naming and marketing standards.

According to recent data from the FCA’s Financial Lives survey, there is growing consumer demand for sustainable finance, with 81% of respondents expressing a preference for their investments to yield both financial and societal benefits.


Some firms are now urging the FCA to slow its anti-greenwashing rule citing that it has failed to clarify all its expectations in final guidance, putting businesses that make the wrong call at risk of enforcement action. The regulator has said existing rules already stipulate that businesses should already ensure that their claims are fair, clear and not misleading.

If this new rule is enforced firmly by the FCA it could have a huge impact. Many investment managers and advisers produce detailed ESG reports for their clients, typically monthly or quarterly. Many of these reports are generated using third party data and/or ratings. The new rule states that that FCA will want to see evidence of how ESG assessments influenced their investment decisions.

One example given by the FCA highlights the potential challenges to firms ahead; “In the promotions for a fund, an investment manager prominently displays a claim that all investments are reviewed for their sustainability characteristics. However, not all investments are systematically reviewed for their sustainability characteristics, and sustainability characteristics are not always factored into the investment manager's decisions. There is a risk that the investment manager is overstating the extent to which they consider the sustainability characteristics of investments in the fund and that this claim cannot be substantiated. Should the investment manager wish to make this claim, all their investments should be consistently reviewed for their sustainability characteristics, and the investment manager should hold evidence to demonstrate how they do this and how the review is factored into their decision‑making process. The investment manager may want to consider whether to make this information publicly available in an easily accessible way.”
Anecdotally it is likely that many firms will struggle to do this, or even produce evidence that they conduct regular sustainability reviews for every investment. As this rule applies not just to marketing materials, but also to any report sent to any existing UK client, this means these firms will either have to tighten their processes considerably and quickly, or drop all ‘sustainable investments’ claims.

Asset managers must obtain sustainability data and be comfortable with its reliability. This means they may have to consider more carefully claims made for a product or service, and to specify the source of the data or supporting methodology. The rule therefore puts the burden on asset managers to check out the data the use very thoroughly.


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