UK Regulator Finalizes Anti-Greenwashing Rule for Sustainability Claims

The UK's Financial Conduct Authority (FCA) has published finalized guidance on the anti-greenwashing rule, set to take effect on May 31, 2024. The rule requires regulated firms to ensure their sustainability claims are fair, clear, and not misleading when communicating with clients.

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Mahnoor Jehangir
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UK Regulator Finalizes Anti-Greenwashing Rule for Sustainability Claims

UK Regulator Finalizes Anti-Greenwashing Rule for Sustainability Claims

The UK's Financial Conduct Authority (FCA) has published its finalized guidance on the anti-greenwashing rule, set to take effect on May 31, 2024. The rule requires regulated firms to ensure their sustainability claims are fair, clear, and not misleading when communicating with clients about products and services. This move aims to protect investors and support the long-term growth and competitiveness of the sustainable finance sector.

The anti-greenwashing rule is vital in promoting transparency and trust in the sustainable finance sector, which is increasingly important as investors seek to make environmentally and socially responsible investment decisions. The demand for sustainable finance continues to grow, and this rule will help to ensure that investors are not misled by false or exaggerated claims, contributing to a more The anti-greenwashing rule is vital in promoting transparency and trust in the sustainable finance sector, which is increasingly important as investors seek to make environmentally and socially responsible investment decisions. The growing demand for sustainable finance will help to ensure that investors are not misled by false or exaggerated claims, contributing to a moresustainable future.

The anti-greenwashing rule is part of the UK's Sustainability Disclosure Requirements (SDR) and investment labels regime, which was introduced for asset managers in November 2023. The FCA is also consulting on extending these requirements to portfolio managers, making it easier for consumers to make informed choices about sustainable investments. Firms must be able to substantiate any sustainability-related claims as part of the new regulations.

Sacha Sadan, Director of Environmental, Social and Governance at the FCA, emphasized the importance of these milestones, stating, "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."

Why this matters: The latest Financial Lives survey reveals that 81% of adults surveyed would like their investments to do some good in addition to providing a financial return. The new rule includes product labels to help consumers understand what their money is being used for and naming and marketing requirements so products can only be described as having positive outcomes on the environment and/or society when thoseclaims can be backed up.

Investment managers have expressed support for the anti-greenwashing rule but also warn that new regulation can pose challenges for firms and the industry. Rob Guest, co-lead fund manager of Foresight Sustainable Forestry Company, stated,"We are in favour of SDR's anti-greenwashing rule and see this as an encouraging signal that investors are becoming more sophisticated in their understanding of this area and are seeking assurances of accuracy. Ed Mountney, co-lead investment manager for JLEN Environmental Assets Group, added, "The introduction of a robust framework establishing parameters for a reliable sustainability reporting regime is a positive development for the industry overall, which will also benefit investors who will be able to assess different sustainable investment vehicles."

However, Eleanor Fraser-Smith, head of sustainability at Victory Hill Capital Partners, noted that many disclosure regulations published in recent years have been "complex and technical" and may not be effective in building trust in the sector. She emphasized, "Regulations that focus on fair, clear and not misleading communications are vital."

The FCA will work closely with the Advertising Standards Authority (ASA) and the Competition and Markets Authority (CMA) to address greenwashing, ensuring that consumers can makeinformed decisionswith their money. Demand for sustainable finance continues to grow, and the anti-greenwashing rule serves as a vital step in promoting transparency, accuracy, and trust in the sector.

Key Takeaways

  • UK's FCA publishes finalized guidance on anti-greenwashing rule, effective May 31, 2024.
  • Rule requires firms to ensure sustainability claims are fair, clear, and not misleading.
  • Aim is to protect investors and support sustainable finance sector's growth and competitiveness.
  • FCA to extend Sustainability Disclosure Requirements to portfolio managers, making informed choices easier.
  • Industry supports anti-greenwashing rule, but warns of potential challenges in implementation.