New FCA rule anti greenwashing rules for financial products

The Financial Conduct Authority (FCA) has updated its rules and guidance to address greenwashing in the advertising of financial services, effective from the 31 May 2024.

The FCA has introduced a general rule combating greenwashing which specifically requires that all voluntary statements made by firms which are FCA authorised must be fair, clear and not misleading. The guidance highlights the following points:

• All claims must be substantiated with robust and credible evidence which must be kept up-to-date.
• Colour, images and imagery can impact consumer understanding of claims and this should be factored in when considering what substantiation is necessary.
• Both vague general environmental claims and use of highly technical language can confuse consumers and could be misleading if they suggest that a product or service has sustainability credentials which are not true.
• Caveats and limitations on environmental credentials must be clearly and prominently stated.
• Sustainability should be looked at in the round and claims presented in a balanced way which does not unduly highlight only positive sustainability credentials. This should be done with reference to the lifecycle of a product or service.
• Any comparisons with previous products or competitor products must compare like with like and explain to the reader what is being compared and how the comparison has been achieved.

Effective from July 2024, the FCA has created four new labels that can be used to describe the sustainability credentials of individual products to consumers.  

These changes mirror developments by other UK and international regulators. Also, the principles of the FCA’s anti-greenwashing guidance are in line with the CMA’s green claims code and the ASA’s guidance on environmental claims. The trend towards creating defined labels is also evident. The EU is taking this approach in its green claims directive and the CMA has also recommended that the UK government define certain environmental claims in law – although there are no clear plans to do this yet. 

Conclusion

Regulatory scrutiny on environmental claims is on the rise.  So, whether you are caught by the FCA, by the more general requirements of the ASA or CMA, it is important to make sure you have proper substantiation of all claims and that you have the internal processes and contracts in place to defend the claims should they come under scrutiny. Additional legal risks to consider include shareholder activism.

For more on greenwashing, read our previous blogs to find out what are the risks and where are we now, or reach out to our ESG team or your normal contact at Mills & Reeve.