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The Financial Conduct Authority (FCA)’s new Anti-Greenwashing Guidance comes into force on May 31, 2024 marking a significant step towards transparency and accountability in sustainability-related claims.

The rise in claims with reference to sustainability has been accompanied by growing concerns over exaggeration, misleading information, and unsubstantiated assertions. To maintain consumer trust and protection, firms making claims about the environmental and social characteristics of products and services must now demonstrate compliance with the new rules. Non-compliance could lead to severe consequences, including fines, suspensions, or even prohibitions by authorities.

In this blog I explore the FCA's criteria for sustainability-related claims and recommend the adoption of a digitized Lifecycle Governance Framework as effective method to avoid inadvertently breaching the Anti-Greenwashing Rule.

Understanding the FCA’s Anti-Greenwashing Guidance

The FCA introduced the Anti-Greenwashing Rule as part of a broader package of measures detailed in the “Sustainability Disclosure Requirements (SDR) and investment labels policy statement (PS23/16)” issued in November 2023.

The “Finalized Non-Handbook Guidance on the Anti-Greenwashing Rule (FG/24/3)” (the Guidance) provides firms with the necessary instructions to ensure that sustainability-related claims are fair, clear, and not misleading.

Ultimately, the Guidance aims to protect consumers from greenwashing, enabling them to make informed decisions aligned with their sustainability preferences. Therefore, FCA-authorized firms that communicate with UK clients about products or services must ensure any references to sustainability characteristics are correctly substantiated, clear, and complete. The FCA also highlights that firms should consider guidance from other regulatory bodies like the Competition and Markets Authority (CMA) and the Advertising Standards Authority (ASA).

Key Requirements for Sustainability Claims

References to sustainability include both environmental and social aspects of a product or service. This may include the use of terms such as "green", "ESG", "responsible, socially", "net zero", etc.

The Guidance states that sustainability claims should adhere to the following criteria:

• Correct and Substantiated: Claims must be accurate and backed by credible evidence.

A firm’s products or services must deliver on their promises. Firms should thoroughly consider whether they have sufficient evidence to back up their claims. Regular reviews of these claims and the supporting evidence are necessary to ensure continued relevance, particularly while the claims are being communicated (e.g., during an active financial promotion). Additionally, firms must ensure their claims remain compliant with the Guidance at all times.

• Clear and Understandable: Claims should be presented in a clear and comprehensible manner.

Any claims made by firms should be clear and easy to understand. Firms should ensure that all terms are comprehensible to their target audience. The use of images, logos, and colors plays a significant role in how a claim is perceived. Firms should consider how these visual elements, when combined with other sustainability characteristics of a product or service, may be interpreted by the audience. Firms under the FCA’s Consumer Duty should test their communications when necessary and gather the information needed to understand and monitor customer outcomes.

• Complete Information: Claims should not omit or hide important information, considering the full lifecycle of the product or service.

Firms should ensure they do not omit or conceal important information and should consider the entire lifecycle of the product or service. Claims must be balanced, avoiding the emphasis on positive sustainability impacts if it obscures negative ones or focusing only on a product’s or service’s positive sustainability traits while ignoring other aspects that may harm sustainability. Any limitations of the data used to support the claim should be disclosed. Additionally, firms should consider whether information about the firm itself contributes to the overall impression of a product or service. It is crucial that these claims adhere to relevant rules and expectations to present a fair, clear, and not misleading overall picture.

• Fair Comparisons: Any comparisons to other products or services should be fair and meaningful.

When making claims that compare the sustainability characteristics of products and services, firms should clearly specify what is being compared and how the comparison is conducted, ensuring that they are comparing similar items. Firms should exercise caution when asserting that a feature of a product or service has sustainability characteristics when it may simply be meeting minimum legal requirements.

While some of the above points can seem unclear and open to interpretation, the Guidance provides firms with a clear set of criteria that define each point and examples demonstrating good and bad approaches. The FCA has maintained a principles-based approach, intending for the rules to be applicable across various sectors. Overall, the Guidance remains a solid reference for companies that want to avoid greenwashing and have the interest of prospective clients, customers and consumers in mind.

Preparing for Compliance: Establish a Lifecycle Governance Framework

To avoid inadvertently breaching the Anti-Greenwashing Rule, companies should adopt a Lifecycle Governance Framework. This is a comprehensive approach to managing products throughout their entire lifecycle, from conception to retirement; it includes strategic planning, risk assessment, ongoing monitoring, and flexible decision-making. This method helps organizations ensure optimal product performance, regulatory compliance, and sustainable value creation.

In the instance of greenwashing risk, a Lifecycle Governance Framework supports compliance processes and ensures ongoing reviews of claims and targets throughout the product or service lifecycle. Once you have established the Lifecycle Governance Framework, here’s how to get started:

1. Assess Sustainability Claims: Evaluate claims against the criteria defined by the Rule.
2. Support with Evidence: Be prepared to substantiate claims with robust and credible evidence.
3. Ongoing Reviews: Continuously review claims and supporting evidence throughout the product lifecycle.

Prevent Greenwashing with Skyjed

Skyjed offers a digital solution to help companies streamline a robust lifecycle governance framework by leveraging effective governance tools, reports and monitoring workspace as a foundation to understand product lifecycles.

Skyjed automates all the anti-greenwashing requirements, which means you spend less time on manual tasks and administration and more time on growth and innovation. Here’s how we can assist:

• Digitize Governance Framework: Streamline the compliance process with digital governance tools.
• Access Pre-Built Checklists: Utilize anti-greenwashing checklists from FCA, CMA, ASIC, and other regulators to quickly assess and review your claims.
• Leverage Templates: Easily build the necessary evidence to back up sustainability claims with our templates.
• Maintain Audit Trails: Keep comprehensive audit trails of ESG data and decisions.
• Automated Risks and Opportunities: Prioritize key risks and opportunities and receive notifications when you meet pre-defined thresholds.
• Collaborate Across Teams: Collaborate in cross-functional teams to ensure thorough compliance.

Image. Sample of Skyjed’s pre-built anti-greenwashing checklist.

Key Outcomes for Companies Using Skyjed

Companies that implement Skyjed’s solutions can expect the following outcomes:

• Customer Protection and Trust: Enhance consumer confidence through transparent and accurate sustainability claims.
• Shareholders’ Confidence: Boost investor trust with reliable and verified sustainability information.
• Accountability and Transparency: Achieve higher standards of corporate responsibility.
• Compliance, Assurance and Risk Management: Ensure adherence to regulatory requirements and mitigate risks.

By preparing effectively and leveraging the right tools, firms can navigate the new Anti-Greenwashing Guidance confidently, ensuring their sustainability claims are both credible and compliant.

Contact us today at Skyjed to learn more about how we can support your compliance efforts.

About Skyjed

Skyjed’s AI-powered end-to-end lifecycle and governance platform is mission control for product management and your business as a whole.

Bringing together every data point across your entire product portfolio and lifecycle into a single source of product truth, it gives our clients a new perspective to make more strategic lifecycle decisions to launch, monitor, optimize and win with brilliant products.

Our industry-leading platform has received numerous awards and recognition from clients and industry bodies, demonstrating our commitment to innovation and excellence.

Watch our Skyjed Video.