FCA anti-greenwashing rule takes effect

The Financial Conduct Authority (FCA) brought its anti-greenwashing rule into force on 31 May 2024, the first of its measures to tighten how sustainability claims are made in financial products¹. The rule applies to all products and services provided by FCA-regulated companies, covering investment companies, current and savings account providers and insurers¹.

Under the rule, any sustainability claim must be "clear, fair and not misleading", and firms must be able to evidence claims such as a savings account being labelled "ethical" or "green"¹. The rule also requires firms to make clear how a product is sustainable. A fund could no longer be described as "sustainable" if it took environmental, social and governance (ESG) considerations into account but still invested in fossil fuels¹. The FCA also warns against greenwashing through the impression created by images, logos and colours, and firms may only use such images where they are consistent with the sustainability characteristics of the product displayed alongside them¹.

Firms are not permitted to highlight the good and ignore the bad in the impact of their products and services, and must explain the workings of investment funds' "screening" processes¹. Where a firm claims a product is better for the environment than others on the market, the comparison must be "fair and meaningful"¹. The rule covers how products and services are marketed, not claims companies make about themselves; the Advertising Standards Authority and Competition and Markets Authority have their own guidance on sustainability claims made by firms about themselves¹.

Enforcement is untested. There is a potential penalty of public reprimand or fines, but it is not known how common these will be until they start being issued¹. Consumers who feel misled by marketing about a product or service's eco-credentials can report the misleading advert to the FCA¹.

Why it matters for households

The rule affects anyone holding or considering an FCA-regulated product marketed on sustainability grounds, including investments, current and savings accounts and insurance¹. From 31 May 2024, claims made about those products must be substantiated and presented clearly¹. Separately, new labels for investment funds take effect on 31 July 2024, intended to make clear the differences between the aims of funds¹. Eligible funds can use one of four labels: sustainability impact, sustainability focus, sustainability improvers, or sustainability mixed goals¹. To qualify, at least 70% of a fund's assets must be invested according to the sustainability objective set by its manager, and the remaining 30% cannot be at odds with that objective¹. Funds using a label must also meet stewardship requirements, under which managers support the companies they invest in to meet the stated sustainability objective¹.

What happens next

The fund labelling regime comes into effect on 31 July 2024¹. Make My Money Matter, a charity focused on sustainability in financial services, has written to regulators asking for an investigation into how high street banks communicate their impact on the planet as a whole, rather than through specific products or services¹. Its chief executive, Tony Burdon, said in the letter:

The FCA has not said how frequently it will issue penalties under the new rule, and no enforcement outcomes have been reported¹.