The FCA's anti-greenwashing rule

May 2024

The FCA has published finalised guidance (FG 24/3), following its 2023 consultation, to assist firms in meeting their obligations under the anti-greenwashing rule (AGR).

From 31 May 2024, the AGR will require claims made by FCA-authorised firms about sustainability-related financial products and services to be `fair, clear and not misleading', and to be consistent with the sustainability characteristics of the product or service.

With very little time left until the AGR comes into force, all in-scope firms should now be prioritising their preparations. While firms are already subject to rules on the marketing and communications of their products and services, the AGR formalises sustainability-related expectations and is likely to require significant uplift across business areas, processes and controls.

The `4 Cs' continue to underpin the AGR. Claims made by firms should be:

1. Correct and capable of substantiation — factually accurate and able to be supported by robust, relevant and credible evidence that is reviewed regularly.
2. Clear — transparent and straightforward, with the meaning of all terms generally understood by the intended audience.
3. Comparable — fair and meaningful whether in relation to a previous version of the same product or service or to a competitor's product or service.
4. Complete — considering the full lifecycle of the product or service and not omitting or hiding important information that might influence decision-making. This extends to not highlighting only positive sustainability impacts where this disguises negative impacts.

However, the FG provides some key clarifications on the 2023 consultation proposals:

• Scope — the AGR will only apply to communications making sustainability-related claims to users in the UK, as well as financial promotions approved for communication to persons in the UK.
• Firm-level impact — firm-level disclosures and the claims firms make about themselves are outside the scope of the AGR. However, these disclosures and claims add to the overall picture of a firm — as such, they should be considered when assessing how users are likely to understand sustainability-related claims. Firm-level disclosures and claims remain subject to other expectations and rules, including guidance from the Competition and Markets Authority (CMA) and Advertising Standards Authority (ASA), the FCA's Consumer Duty and FCA Principles 6 and 7. No rules from the FCA Handbook or other sources (i.e. CSA, ASA) are overridden.
• Application — the AGR applies to the visual presentation of communications and sustainability-related claims. However, it does not apply to communications and claims which are not intended to refer to or describe the sustainability-related characteristics of a product or service.
• Evidence — the FCA suggests that firms should consider making the evidence to support their in-scope claims public, but this is not mandatory.
• Asset managers — the FCA confirmed that asset managers need to comply with the AGR by 31 May and subsequently with the SDR naming, marketing and disclosure rules by 2 December 2024.

When planning their actions, firms should consider the following five areas to make the best use of the short time remaining until 31 May:

1. Establish your perimeter — be clear in establishing the extent of greenwashing risk with reference to the AGR. This will predominantly cover communications surrounding products and services to UK users but thought also needs to be given to the concept of the `representative picture' and any claims that the firm has made about itself. The `representative picture' has the potential to grow the perimeter of the review exponentially, to cover areas such as websites, videos, podcasts and social media. Any commitment to a wider perimeter needs to be backed up by appropriate risk-based assessments and capable resources to conduct them.
2. Define and prioritise areas to review — reviewing every document, particularly in an expanded perimeter, is a labour- and time-intensive activity. Firms should have clear criteria for ranking and prioritising items carrying greater perceived risk. Creating a prioritisation methodology that appropriately configures this risk assessment is key, and it can often be challenging to devise scoring criteria that appropriately differentiate the risk factors. However, once the methodology is established it can enable focus on the most important and material areas to assess ahead of the AGR coming into force.
3. Create an assessment toolkit that delivers consistent guidance for reviewing documents — there will be multiple people performing document reviews, so ensuring consistent application of guidance is critical to avoid contradicting assessments and different positions being taken on similar items. There is a fine balance between providing too little guidance, which may lead to over-reliance on individual interpretations, and providing overly complex and lengthy guidance and criteria. The FCA's examples around the `4 Cs' can be helpful in striking the right balance and provide reviewers with key questions to consider.
4. Establish appropriate governance for subjective items — there will be instances where reviewers find themselves undecided on whether an image, phrase or statement could constitute greenwashing. Standing up an impartial panel to advise and make pragmatic decisions on items in that `grey zone' can help demonstrate due process and rigour over the interpretation of contentious items.
5. Validate and reinforce your go-forward anti-greenwashing control framework — ultimately points 1 to 4 are part of a backward-looking story but firms also need to look ahead. The next challenge is to ensure that the overall framework for anti-greenwashing controls is robust, at a minimum for firm- and product-level greenwashing risk. While firms will already have a number of pre-existing controls, operating, elevating and fine-tuning them to incorporate greenwashing risk will require specific additional focus.

KPMG in the UK can support firms in the short term to prepare for the 31 May deadline and beyond that to embed and strengthen the ongoing requirements of the AGR. Our team of subject matter experts bring in-depth understanding of the evolving regulatory and legal landscape as well as on the ground experience of assisting firms operating in the UK and EMEA. Our suite of propositions, from AGR health-checks to risk management framework reviews, marketing and website reviews, and overall programme support, can help you to identify, evaluate, mitigate and manage greenwashing risk.