What insurers should know about the FCA’s anti-greenwashing rule

The Financial Conduct Authority has been taking an increasingly proactive approach to environmental, social and governance issues and, in particular, the risk that authorised entities may not be presenting a factually accurate picture of their own management of these risks, or the sustainability of their products, to the consumer.

One of the most recent attempts to minimise those risks is the introduction of the anti-greenwashing rule, which came into force on 31 May 2024, with the FCA explaining that the new rule is designed to protect consumers by ensuring sustainable products and services are accurately described.

The vast majority of consumers are interested in whether or not investments they make and products they buy are sustainable. Sacha Sadan, director of environmental, social and governance at the FCA, explained: “Consumers care about investing in products that have a positive impact on the planet and people. That’s why we want to boost the integrity of the market and ensure people can make informed decisions with their money.”

Truth and transparency

The rule, which is part of the new Sustainability Disclosure Requirements regime, can be found in the FCA’s Environmental, Social and Governance Sourcebook and applies to all FCA-regulated firms that are making any kind of claims about the sustainability characteristics of any of their products or services. 

If a statement is being made, it should be clear and accurate and the accuracy must be reviewed on a regular basis.

In short, if the authorised firm is communicating with an investor in the UK regarding a financial promotion, or approves it for communication, or if it communicates with a customer in the UK in relation to a product or service, the rule is applicable. 

The rule is this: if a company is making reference to the sustainability characteristics of a product or service, that communication must be consistent with the characteristics that the product actually has, and it must be clear.

It could be argued that this is nothing new, and indeed the FCA has always been focused on ensuring that consumers are given accurate information but, for those entities within the scope of regulation, the rule creates a specific ESG-focused obligation that cannot and should not be ignored. 

If a statement is being made, it should be clear and accurate and the accuracy must be reviewed on a regular basis. 

Companies must review all ways in which statements are made and how they are presented. It is not just written descriptions of products in prospectuses and marketing materials or on websites. 

Consideration must be given to the overall presentation of a product and claims as to its sustainability, and that includes advertisements, logos and images. 

What will a consumer take from the overall presentation of the product? It is also important not to disguise the less positive aspects of a product from a sustainability perspective, and the full life cycle of the product or service must be considered.

Wide scope

The rule will have wide application in terms of the types of business that fall within scope, including those operating in the travel and transport sectors that are understandably keen to promote their sustainable qualities. 

Companies will have to ensure they are not wrongly leading consumers to believe that their travel choices prevent damage to the environment, or promote local economies and communities, if that is not, in fact, the case. 

Each industry will face its own challenges in ensuring compliance with the rule, and while the FCA’s approach may initially be one of comply or explain, the potential for enforcement action down the track should not be ruled out. 

In addition, companies must be mindful of the potential for civil litigation arising from alleged misstatements, including under section 90 of the Financial Service and Markets Act 2000.