iLast week, the United Kingdom's Financial Conduct Authority issued guidance on its proposed anti-greenwashing rule, which will come into effect at the end of May 2024. (Greenwashing is when a product, service, or firm is portrayed as more environmentally-friendly than it actually is.) This rule will apply to any firms that “communicate[] with clients in the UK in relation to a product or service or communicate[] a financial promotion (or approve[] a financial promotion for communication) to a person in the UK.” In essence, the rule “requires firms to ensure that any reference to the sustainability characteristics of a product or service is: consistent with the sustainability characteristics of the product or service, and is fair, clear and not misleading.” In other words, the FCA will police firms in the UK to ensure that any statements concerning ESG characteristics are accurate and verifiable.
The UK has now joined a number of other jurisdictions that are particularly focused on addressing the issue of greenwashing. Both the SEC and numerous state regulators (e.g., attorneys-general) in the United States have enacted rules and initiated lawsuits intended to combat the phenomenon of greenwashing. Although this regulatory initiative could be viewed as simply an outgrowth of typical activities designed to ensure that market participants do not perpetrate frauds or make false statements, it is noteworthy that greenwashing has become such a significant phenomenon so as to demand particular rules and guidance concerning its various forms--and that regulators perceive that political points can be made by publicizing this focus.
It seems likely that efforts to police greenwashing will continue across multiple jurisdictions, and so companies subject to these various laws and regulations should pay particular attention to their ESG disclosure and advertising materials to ensure that they do not run afoul of government regulators.
Britain's financial regulator confirmed on Tuesday that its new bespoke rule to combat greenwashing would come into force from May 31 to stop investment firms inflating the green credentials of their products to retail customers. The new labelling rule is designed to protect consumers by ensuring sustainable products and services they are sold are accurately described, the Financial Conduct Authority said. Any reference to environmental, social and governance (ESG) sustainability topics in a product or service must be fair, clear and not misleading, meaning they can be substantiated. . . . "It gives us an explicit rule on which to challenge firms if we consider they are making misleading sustainability‑related claims about their products or services and, if appropriate, take further action," the FCA said in a document on the rule.
