Now that the FCA has published its final guidance on the anti-greenwashing rule that sits alongside its Sustainability Disclosure Requirements, we are on the home straight before its start date of 31 May. Other than digesting the final guidance document, FG24/3, for any material changes since the consultation at the end of last year, there is little excuse for not making the progress necessary to meet the start date.
Given that last year’s guidance consultation said that the FCA expected “the anti-greenwashing rule and associated guidance to impose a minimal burden on firms”, you might have been forgiven for thinking that the new rule is little more than a rework of the “fair, clear and not misleading” principle that we have all lived with for years. However, you would then have been disappointed not to see that statement repeated in the final guidance.
Perhaps there was a clue in the fact that, at the same time as expecting it to be a minimal burden, the FCA chose to move the start date back by six months from the publication of the final rules. After all, if anti-greenwashing were no more than being fair, clear and not misleading, there would have been no need to give firms extra time to get up to speed. Or for the FCA to publish guidance on its expectations, complete with examples and good practice.
See also: Industry welcomes FCA’s anti-greenwashing guidance but will need to ‘rush’ to meet 31 May deadline
Instead, the FCA chose to turn the principle into a specific rule in the ESG sourcebook and gave the anti-greenwashing rule its own section. The policy statement did indeed contain several references to being fair, clear and not misleading, and specifically that the rules on financial promotions to retail clients “are without prejudice to the need to ensure that the relevant financial promotion is fair, clear and not misleading”.
But there is plenty more alongside that.
- The rule applies to all FCA-authorised firms, not just product providers, regardless of whether the promoted product or service claims sustainability characteristics. Any communication to any audience in the UK is subject to the anti-greenwashing rule, including making sure that sustainability-related language doesn’t creep in by mistake.
While communications intended for all audiences are in scope, the guidance recognises that professional investors and market counterparties may have a better understanding of some of the language than consumers, without the need for further clarification to make it understandable.
- The list of terms that should be a warning flag to any firm using them in their product name or retail communications includes the catch-all “and any other term which implies that a [fund] has sustainability characteristics.”
The word that may warrant particular attention here is “implies”, as, in line with the Consumer Duty, you should look at it from the consumer’s side and consider whether they could take any statement in a communication as an implication that the fund has sustainability characteristics.
Excused from this obligation, for obvious reasons, are short, factual statements about a product, or where the words are used in a context unrelated to a fund’s characteristics, such as the “economic climate” or explaining who is “responsible” for providing a service.
- As the FCA’s guidance on the rule points out, references to sustainability could be in an image, rather than a statement, and the impression created by that image needs to be considered: “Claims may be undermined if what they say is factually correct, but their visual presentation conveys a different impression”.
This is not just about what an image shows, but it could even refer to the colours used, so excessive use of green or sunny yellow in images may be seen as giving an impression of environmental sustainability.
- Mentions of a product’s sustainability characteristics must be balanced and complete so any negative impacts cannot be ignored or downplayed, with an emphasis only on the positive points. And you must be able to substantiate every claim.
If looking to take a belt-and-braces approach, you could do worse than consider an audit of all live documents used externally, including prospectuses and annual reports, to check what is said, how it is said and what visuals are used. Remember that an idyllic pastoral scene in the wrong place could be interpreted as implying sustainability characteristics.
While not a marketing document, you may need to include a Key Investor Information Document (KIID) in this exercise. This is to check how a fund’s objective, investment policy and strategy are described and to also confirm that it is still consistent with the prospectus wording if that is updated to meet the anti-greenwashing rule.
To strain the colour analogy somewhat, the expectation is for firms to be whiter than white – and there is little excuse now for not knowing what that entails – but not to the extent of “greenhushing” or playing down any genuine sustainability characteristics. After all, that could easily drag you across the line away from being “fair, clear and not misleading”.
