Anti-greenwashing rule to tackle misleading investment claims comes into effect

Financial institutions and firms must ensure retail investors are given accurate information on sustainability as a new anti-greenwashing rule comes into effect.

The Financial Conduct Authority (FCA) said claims on the green goals of investment products and services should be “fair, clean and not misleading”, starting from Friday.

The rule is the first to kick in from a wider package of FCA measures aimed at tackling greenwashing.

Sacha Sadan, director of environmental, social and governance at the FCA, said: “These new rules will help people make informed decisions about their money.

“They should give greater faith that green investments people choose have been sold fairly and marketed accurately.”

The FCA first announced the measures in November following a consultation with industry, other regulators and consumer groups.

Firms have had six months to prepare for the anti-greenwashing rule, which is linked to the Competition and Markets Authority and Advertising Standards Authority’s existing guidance on the issue.

Last month, the FCA released its finalised guidance alongside examples of how firms can comply with the requirement.

This included telling firms to think “carefully about whether they have the appropriate evidence to support their claims”.

A report from PwC and the UK Sustainable Investment and Finance Association (UKSIF) released on Thursday outlined recommendations on how firms could implement the new rules, saying they were left “very little time” to digest the finalised FCA guidance.

James Alexander, chief executive of UKSIF, said: “The rule is very wide in scope, and firms must work hard to ensure their organisations are communicating across different teams so that products are being labelled and marketed accurately to clients and consumers.

“Our sense is that this has been an administrative challenge, but one which firms recognise as important and valuable.”

Lindsey Stewart, director of investment stewardship research at Morningstar, said: “While this ultimately helps investors make the right choices to match their sustainability needs, compliance is proving to be a heavy lift for many providers.”

A spokesperson for UK Finance, which represents banks, said: “Given the tight implementation timetable for firms following the publication of the guidance in April, we recommend the FCA takes a proportionate approach when applying these rules.

“Such an approach would be in line with existing rules on communications and financial promotions, and help support the growth in sustainable and transition products and services.”

As part of the package of measures, the watchdog announced sustainability disclosure requirements and an investment product labelling system, which aim to help customers understand what their money is being used for and that any claims can be backed up by evidence.

Both are set to come into effect for asset managers from July 31.

The FCA will also introduce a naming and marketing requirement for asset managers from December 2, which aims to ensure products cannot be described as having a positive impact on sustainability if they do not.

It is currently consulting on extending these measures to cover portfolio managers – firms that manage a diversified group of investments for consumers, meaning they would ultimately apply to a wider scope of products.