What is greenwashing?
Environmental claims are a powerful marketing tool, but their misuse – known as ‘greenwashing’ – is a major regulatory concern. Greenwashing describes misleading marketing that overstates a product or service's eco-friendliness.
What guidance has the Financial Conduct Authority published on anti-greenwashing?
The greenwashing issue has gained significant traction with the UK financial regulator, the Financial Conduct Authority (FCA). In May 2024, the FCA introduced new guidance to combat greenwashing and help companies comply with the FCA’s new Anti-Greenwashing Rule. This guidance clarifies expectations for UK companies making sustainability-related claims. Effective as of May 31st, 2024, the FCA requires all claims to be fair, clear, not misleading, and consistent with the actual sustainability characteristics of the product or service.
Companies risk enforcement action, litigation, and reputational damage for unsubstantiated green claims. Understanding and adhering to the FCA's guidance is crucial for navigating this complex area.
What are the key components of the guidance?
The FCA’s Anti-Greenwashing Rule, effective May 31st, 2024, and the associated guidance requires companies to comply with four key requirements.
Firstly, claims must be correct and capable of being substantiated under the Rule. Vague terms or unsubstantiated comparisons are discouraged. The guidance emphasises the need for verifiable evidence to support sustainability claims.
Secondly, clarity is paramount. The Rule requires information to be clear and presented in a way that can be understood. Complex jargon or misleading visuals should be avoided to ensure consumers can make informed decisions.
Thirdly, the Rule emphasises completeness. Companies should not omit or hide important information and should consider the full life cycle of the product or service. The guidance encourages a balanced presentation of a product's sustainability characteristics.
Lastly, claims must be fair and meaningful where comparisons are made to other products or services.
Is there consistency with other legal frameworks?
The FCA worked closely with other regulatory agencies to guarantee that the various frameworks were cohesive. Many businesses will already be familiar with anti-greenwashing guidelines issued by other UK authorities, such as the guidelines on environmental claims from the Competition and Markets Authority (the "CMA") and the Advertising Standards Authority (the "ASA").
What enforcement powers does the FCA have?
When there is non-compliance, the FCA uses a broad range of criminal, civil, and regulatory enforcement powers. These include financial penalties, banning individuals from engaging in regulatory activities, public censure, and legal action.
Are there wider sustainability-related measures?
The FCA places a high premium on preventing greenwashing, which will safeguard customers and enable them to make informed decisions. It will also promote a more equitable market for companies who are genuinely making sustainability claims about their goods and services. The implementation of the Rule is a component of a larger set of regulations that the FCA unveiled in November 2023 in its statement on investment labelling and sustainability disclosure requirements, or "SDR" (PS23/16).
What about compliance in other jurisdictions?
Businesses operating in the UK, the EU, the US or elsewhere must take compliance under all relevant regimes into consideration, even though the FCA is closely collaborating with the CMA and the ASA to guarantee that greenwashing requirements for UK businesses are uniform. As part of the EU Green Deal, for example, the EU is implementing a number of anti-greenwashing measures, such as the new Directive on Empowering Consumers for the Green Transition, which forbids making false or misleading claims about a company's environmental actions, including carbon neutral claims.
What are the implications for financial and other organisations?
The FCA's Anti-Greenwashing Rule, signifies a broader trend towards stricter regulations on environmental claims across all sectors. While the specific details of greenwashing may vary by industry, the core principle remains - sustainability claims must be clear, accurate, and verifiable.
The Rule, coupled with the FCA's wider focus on environmental disclosures, necessitates a proactive approach from companies. Firms with sustainability-related marketing materials should assess compliance with the Rule across all financial promotions and marketing frameworks. Additionally, a review of existing policies, procedures, and external communications (websites, marketing materials) is crucial to ensure complete alignment with the new regulations.
How 3CS can help
Our team of corporate and commercial lawyers and consultants have both domestic and international expertise and offer a full range of corporate and commercial legal services. If you need any assistance in relation to anti-greenwashing or other legal matters, please get in touch with your usual 3CS contact.
