Combatting greenwashing in financial services

The FCA expects firms’ sustainability-related claims about products and services to stand up, but the regulator is still not clear about precise scope.

The FCA’s long awaited anti-greenwashing rule comes into force on May 31, 2024. While some clarification has been sought from the regulator on the proposed guidance that will accompany the rule, it seems likely that it will come into force on the same date. 

The FCA has on many occasions stated that it is committed to tackling greenwashing. The proposed guidance makes clear that it expects firms’ sustainability-related claims about their products and services to live up to what is being claimed, and firms should have the evidence to back them up. 

The question we have been considering is: will the rules and guidance in and of themselves be enough to improve the quality of sustainability claims, or will the FCA feel the need to increase its use of supervisory and enforcement tools to drive the change in behavior it would like to see?

What is the anti-greenwashing rule?

Firstly, a brief recap on the rule. The anti-greenwashing rule (R4.3.1 of the ESG Sourcebook) will require all regulated firms, whether dealing with retail or institutional customers, to ensure that any reference to the sustainability characteristics of a product or service is (a) consistent with the sustainability characteristics of the product or service; and (b) fair, clear and not misleading.

The proposed guidance says that in effect this requires sustainability-related claims to be: 

  • correct and capable of being substantiated;
  • clear and presented in a way that can be understood;
  • complete – not omitting or hiding important information and should consider the full life cycle of the product or service; and
  • fair and meaningful in relation to comparisons to other products or services.

This criteria will apply to all communications about financial products or services which refer to the environmental and/or, social (for example ‘sustainability’) characteristics of those products or services,  present in, but not limited to, “statements, assertions, strategies, targets, policies, information, and images.” 


The anti-greenwashing rule itself is clear that it applies to statements that seek to make a claim about the sustainability characteristics of products and services. However, in its proposed guidance the FCA commented:

“Firms are reminded that the CMA and ASA’s guidance and FCA Principles 6 and 7 or, as relevant, the Consumer Duty (Principle 12 and the rules in PRIN 2A), apply to sustainability-related claims that a firm may make about itself as a firm. Information about the firm itself may be considered part of the ‘representative picture’ in a decision-making process so it is important that these claims are also fair, clear and not misleading.”

This has prompted concern that the rule could apply more broadly to general information published about the firm, such as its greenhouse gas emissions targets, or in circumstances where the claims are not necessarily being used to influence-decision making about specific products or services. 

This is fuelled by the fact that the FCA has specified that the rule will apply to sustainability characteristics present in strategies, targets and policies, but has failed to include any examples to confirm that this does not include more general information about the firm. UK Finance, in its response to the consultation on the accompanying guidance, has called on the FCA to clarify.

It is also possible that the rule will apply to communications in relation to which a firm has a role which stops short of formal approval.

It is clear from the wording of the rule itself that it will apply to FCA authorized firms that formally approve a financial promotion on behalf a non-regulated firm. However, it is also possible that the rule will apply to communications in relation to which a firm has a role which stops short of formal approval (for example a communication drafted by a different firm about an external product or service, that is then communicated by the firm).

The guidance and other published statements appear to confirm that the FCA’s intention is that the rule only applies to communications about UK funds, the generic wording of the rule itself leaves open at least the possibility that statements made about overseas funds will be caught.

Even if the FCA is clearer about the precise scope, there are clear risks to firms that make claims about their own business that may amount to greenwashing, or where they make misleading statements about products and services that might not be considered to be ‘theirs’. This might be regulatory action by the FCA on some other basis, action by another regulator or litigation. There is also a risk of reputational damage and loss of business.  

Interplay with existing rules

The FCA has been clear on its view that the anti-greenwashing rule should impose only a minimum burden on firms, due to the regulator’s existing expectation that firms communicate in a way that is fair, clear and not misleading. However, given their concern over the level of greenwashing they perceive to be taking place, it seems likely that firms will need to bring additional focus to this area to check not only that their policies and procedures around sustainability claims are in line with FCA expectations, but also that sustainability claims that are currently in circulation meet the requirements of the anti-greenwashing rule and guidance (now and once finalised)

The FCA has also sought to align the rule and guidance with the principles set out in the Competition & Markets Authority’s (CMA) Guidance on environmental claims on good and services and the Advertising Standards Authority’s (ASA) Advertising Guidance  – misleading environmental claims and social responsibility.

This is a positive step, as one of the challenges for all organizations grappling with ESG law and regulation is the differing requirements of regulators with a role in this area, which is a problem compounded for companies that operate in multiple jurisdictions. While firms will of course still need to be mindful of differences in approach and jurisdiction, decisions and guidance issued by the ASA and the CMA may be helpful in considering the approach the FCA might take on certain issues.

The FCA has also confirmed that the guidance is consistent with the FCA’s Consumer Duty and expects relevant firms to take the aims of the Duty into account when considering compliance with the rule. This will mean acting in good faith to deliver sustainability-related products and services; taking into account the reasonable expectations of retail customers; avoiding causing foreseeable harm, including harm caused through greenwashing and buying unsuitable products; and enabling and supporting retail customers to pursue their financial objectives, including where customers have sustainability-related needs and preferences as part of their investment objectives. 

A new approach?

In the US, the SEC rejected the need for a specific anti-greenwashing rule on the basis it already had the tools it needed to bring enforcement action for misleading sustainability claims. It has used those enforcement tools against a number of financial services firms. Given that the FCA has also had such tools to tackle greenwashing but has not yet taken enforcement action suggests it may allow firms a grace period to ensure compliance with the new rule and guidance, before taking any enforcement action for non-compliance.

However, given the apparent prevalence of greenwashing, we can expect to see the FCA exercising supervisory powers to check how firms are ensuring their sustainability claims meet the FCA’s expectations. With the ASA and CMA having already investigated and published outcomes in a number of greenwashing cases, it may feel compelled to make an example of firms that fail to demonstrate compliance with the anti-greenwashing rule and guidance. 

Claimant firms and ESG funders will also be watching these developments carefully and looking for ways to bring mass mis-selling claims off the back of any systemic greenwashing.

What do I need to do?

Firms should not wait for May 31 to address the FCA’s expectations. Firms subject to the FCA’s new investment labelling regime will already be undertaking significant work around sustainability claims and evidence supporting them. For other firms there is still likely to be a degree of work required to:

  • identify sustainability claims being made about products and services;
  • identify channels through which sustainability claims are being made;
  • identify where sustainability claims engage the Consumer Duty
  • review governance structure, policies and procedures to ensure compliance with FCA expectations
  • amend or withdraw noncompliant sustainability claims
  • collate and retain evidence in support of  sustainability claims

Kari McCormick is a partner in the Financial Services Disputes and Investigations group. Tom Black, partner, is a financial services litigator, with a particular interest in mortgage regulation and contentious ESG issues. Jessica Hambly is an associate and Joseph Lingard is a senior associate in the Financial Services Disputes and Investigations team.