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Sign up now6 things to know about the new anti-greenwashing rule
Financial firms will have to be able to prove their 'green' products are actually sustainable
The Financial Conduct Authority (FCA) has brought in the first of its measures to crack down on dodgy sustainability claims in financial products.
The new ‘anti-greenwashing rule’, introduced on 31 May, applies to all products and services provided by FCA-regulated companies - so will cover everyone from investment companies to current and savings account providers to insurers.
Here, Which? breaks down what the change means for investors, savers and more.
1. Financial firms need to back up their green claims
If a financial firm wants to advertise a product or service of theirs as ‘sustainable’, they’ll need to be able to back it up - or face fines and embarrassment.
This applies to any type of language that aims to communicate to a potential customer that the product is in any way good for the planet.
Any sustainability claims must be 'clear, fair and not misleading'.
So, for example, if a savings account is labelled as ‘ethical’ or ‘green’, there now must be evidence provided to you that supports that claim.
- Find out more: ethical investing explained
2. Sustainability claims need to be presented clearly
The rule also means it needs to be clear and obvious how exactly a product is sustainable.
For investment funds, for example, the language used will need to be more specific to the aims of the fund.
You would no longer be able to describe a fund as ‘sustainable’ if it took ESG (environment, social, and governance) considerations into account, but still invested in fossil fuels.
The FCA also warns against greenwashing through the impression created by images, logos, and colours.
Companies will only be allowed to use these images - for example, a rainforest or someone planting a tree - if they are consistent with the sustainability characteristics of the product or services displayed alongside.
3. Companies can’t hide inconvenient truths about their products
Financial firms won’t be allowed to highlight the good and ignore the bad in the impact of their products and services.
They’ll also need to explain the workings of the ‘screening’ processes of investment funds.
One example the FCA gives is that if an investment fund says it only includes companies in a fund who have an ESG rating of 3 or higher, they’ll need to explain what that actually means and whether that is a high bar or not.
If a firm intends to say their product is better for the environment than others on the market, they also need these comparisons to be ‘fair and meaningful’ - they can’t just pick a specific metric and time frame that supports their point but is not wholly representative.
- Find out more: how green is your pension?
4. The rule covers products and services, not organisations
The new rule covers how products and services are marketed to you, but doesn’t cover the claims companies can make about themselves.
But, the Advertising Standards Authority (ASA) and Competition and Markets Authority (CMA) have their own guidance on sustainability-related claims made by firms about themselves. Firms are also bound in this way to the FCA's Consumer Duty and Principles 6 ('a firm must pay due regard to the interests of its customers and treat them fairly') and 7 ('a firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading').
Make My Money Matter, a charity focused on sustainability in financial services, has written to the regulators asking for an investigation into the ways high street banks communicate their impact on the planet, not through specific products or services but as a whole.
The campaigners have highlighted the difference between the prominence of sustainability messaging and commitments on these banks’ websites compared to the reality of their impact.
Tony Burdon, CEO of Make My Money Matter, said in his letter to the regulators: 'Make My Money Matter very much welcomes the new anti-greenwash rule and guidance from the FCA, which will help address this serious issue and protect customers from misleading claims at a time when a majority of the public has concerns about the environment and the climate emergency.
'All 5 of our largest high street banks - Barclays, HSBC, Santander, NatWest, and Lloyds - provided finance to companies engaged in fossil fuel expansion in 2023, the hottest year on record.'
- Find out more: is your bank funding climate change?
5. Enforcement might be tricky
As the rule comes into effect, it’s hard to know how easily the FCA will be able to enforce it.
There is a potential penalty of public reprimand or fines but, until they start being issued, we don't know how common they'll be.
If you feel you've been misled by marketing and communications about a product or service's eco-credentials, you can report the misleading advert to the FCA.
6. There’s more to come
New labels for investment funds will come into effect on 31 July 2024, with the aim of making clear the differences between the different aims of funds.
Eligible funds will be able to identify as any of the following:
- Sustainability impact - funds that invest in assets directly making a positive impact
- Sustainability focus - funds that invest in assets meeting a robust, evidence-based standard of sustainability
- Sustainability improvers - funds that invest in assets that have the potential to meet a robust, evidence-based standard of sustainability
- Sustainability mixed goals - funds with this label invest in a mix of the above styles.
To qualify for these labels, at least 70% of the assets held in a fund must be invested according to the sustainability objective set out by the fund’s manager, which must fall into one of the above four categories.
The remaining 30% of assets can't be at odds with the fund’s sustainability objective - they couldn’t invest 30% in fossil fuels and still call it sustainable - although they don't have to meet it exactly. For example, a fund might need cash easily available if investors want to sell.
Funds in each label must also meet stewardship requirements, where fund managers support the companies they're invested in to meet whichever sustainability objective they've set out.
