New ‘anti-greenwashing’ rule comes into force

Today, 31 May 2024, marks the implementation of the Financial Conduct Authority’s (FCA) new anti-greenwashing rule (AGR), applicable to all FCA-authorised firms. This regulation aims to safeguard financial services customers from misleading sustainability claims, ensuring they can make informed decisions aligned with their sustainability preferences.

All sustainability-related claims by financial firms must now adhere to the standards of being fair, clear, and not misleading. Non-compliance may result in supervisory actions by the FCA.

Richard Weighell, Financial Services Advisory Partner at BDO LLP, commented on the preparation efforts by firms ahead of this rule. He highlighted the importance of ensuring sustainability claims are accurate, substantiated, clear, and fair, emphasising the need for sufficient evidence to support these claims.

Sasha Molodtsov, partner at BDO LLP, clarified that the AGR applies to both environmental and social characteristics of products or services, dispelling the misconception that it pertains solely to environmental claims.

Later this year, on 31 July, the FCA’s Sustainability Disclosure Requirements will introduce four investment labels for products with sustainability objectives. Firms are advised to prepare in advance to mitigate risks associated with these requirements.

Ruth Knox, Global Co-Chair of the ESG & Sustainable Finance practice at Paul Hastings, noted the broader context of the FCA’s anti-greenwashing rule within the EU's Sustainable Finance Disclosure Regime and the forthcoming EU Green Claims Directive. She emphasised the need for firms to align with both UK and EU regulatory frameworks in managing ESG products.

In conclusion, firms are urged to adopt cautious approaches to comply with the new rules, ensuring transparency and fairness in their sustainability-related communications to avoid regulatory scrutiny.