{"id":7004,"date":"2023-02-06T15:39:00","date_gmt":"2023-02-06T15:39:00","guid":{"rendered":"https:\/\/iqeq.com\/?p=7004"},"modified":"2023-11-29T15:38:42","modified_gmt":"2023-11-29T15:38:42","slug":"fcas-new-anti-greenwashing-rule-are-you-ready","status":"publish","type":"post","link":"https:\/\/iqeq.com\/insights\/fcas-new-anti-greenwashing-rule-are-you-ready\/","title":{"rendered":"The FCA\u2019s new \u2018anti-greenwashing\u2019 rule \u2013 are you ready?"},"content":{"rendered":"<section class=\"text-block standard-spacing  \">\n    <div class=\"container fade-in\">\n        <p class=\"introduction\"><strong>On 25 January 2023, the consultation period closed on the Financial Conduct Authority (FCA)\u2019s paper on Sustainability Disclosure Requirements (SDR) and investment labels (<a href=\"https:\/\/www.fca.org.uk\/publication\/consultation\/cp22-20.pdf\">CP22\/20<\/a>). This paper contains proposals designed to increase transparency on the sustainability profile of products and firms, directly addressing the growing concerns that firms may be making exaggerated, misleading or unsubstantiated sustainability\u2011related claims about their products \u2013 known as \u2018greenwashing\u2019.<\/strong><\/p>\n<p>In line with the proposals,\u00a0<strong>as of 30 June 2023 the FCA will have a new explicit rule<\/strong>\u00a0upon which to challenge firms and bring enforcement action where it considers them to be greenwashing their products or services.<\/p>\n<h2>Overview of the proposed SDR rules<\/h2>\n<p>The FCA aim in the consultation paper is to set \u201ca high bar for products that make sustainability claims, which is important to help clamp down on greenwashing against a backdrop of trust concerns in contrast to the EU and US regimes, where the starting point has been to categorise products principally to determine disclosure requirements\u201d. The proposals are extensive and far-reaching, but there is a sensible period for implementation.<\/p>\n<p>Key dates:<\/p>\n<ul>\n<li><strong>30 June 2023<\/strong>: General anti-greenwashing rule applies to all regulated firms<\/li>\n<li><strong>30 June 2024<\/strong>: Labelling, naming and marketing rules, consumer\u2011facing and pre\u2011contractual disclosure requirements and rules for distributors take effect<\/li>\n<li><strong>30 June 2025<\/strong>: The first ongoing sustainability performance\u2011related disclosures and entity\u2011level disclosures in the sustainability entity report<\/li>\n<\/ul>\n<p>The FCA\u2019s proposals include:<\/p>\n<ul>\n<li>Sustainable investment labels<\/li>\n<li>Consumer\u2011facing disclosures<\/li>\n<li>Detailed disclosures<\/li>\n<li>Naming and marketing rules<\/li>\n<li>Requirements for distributors<\/li>\n<li>A general \u2018anti\u2011greenwashing\u2019 rule<\/li>\n<\/ul>\n<p>The paper is primarily retail investor focused, but funds\u00a0targeting institutional investors can opt to use the labels provided they meet the relevant criteria. Detailed disclosures \u2013 including pre-contractual disclosures, sustainability product reports and sustainability entity (or firm level) reports \u2013 are targeted at both retail and institutional investors. The level of adoption of the labels by institutional funds will depend on the level of credibility achieved with institutional investors by the SDR regime.<\/p>\n<h2>What is the anti-greenwashing rule?<\/h2>\n<p>The new anti-greenwashing rule will require firms to ensure that any reference to the sustainability characteristics of a product or service is:<\/p>\n<ol>\n<li>Consistent with the sustainability profile of the product or service<\/li>\n<li>Clear, fair and not misleading<\/li>\n<\/ol>\n<p>While firms should already be ensuring the information they communicate to clients is clear, fair and not misleading under\u00a0<a href=\"https:\/\/www.handbook.fca.org.uk\/handbook\/PRIN\/2\/1.html\">PRIN 2.1<\/a>\u00a0Principle 7 and\u00a0<a href=\"https:\/\/www.handbook.fca.org.uk\/handbook\/COBS\/4\/2.html\">COBS 4.2.1<\/a>, the rule will now be included in the\u00a0<a href=\"https:\/\/www.handbook.fca.org.uk\/handbook\/ESG.pdf\">ESG sourcebook<\/a>\u00a0(ESG 3.3.1R) and will link this obligation directly with sustainability disclosures \u2013 ensuring firms understand that this obligation applies when they are making any sustainability claims.<\/p>\n<h2>Is my firm subject to the anti-greenwashing rule?<\/h2>\n<p>Although the primary focus of the CP22\/20 paper is protecting retail rather than institutional investors, the anti-greenwashing rule has a broader scope, applying to\u00a0<strong>all FCA regulated firms, including FCA authorised firms approving financial promotions for unauthorised persons<\/strong>.<\/p>\n<p>The rule applies to\u00a0<strong>all sustainability-related claims in all client communications of all products and services<\/strong>\u00a0and is not limited in application to communications with retail clients (unlike the naming and marketing rules). Therefore, it is likely to bring into scope the client communications such as websites and financial promotions of UK AIFMs, delegated MiFiD managers and fund advisors when the financial promotions are approved by an FCA authorised firm.<\/p>\n<h2>When does the anti-greenwashing rule come into force?<\/h2>\n<p>Following the paper\u2019s publication on 25 October 2022, the consultation period closed on 25 January 2023. Next, the FCA will follow up with its Policy Statement by \u201cmid 2023\u201d and provisionally 30 June 2023.\u00a0<strong>From the date of the statement, the FCA\u2019s new anti-greenwashing rule will apply.<\/strong><\/p>\n<h2>What needs to be done?<\/h2>\n<p>Firms should now be considering how to demonstrate compliance with the anti-greenwashing rule ahead of the looming 30 June 2023 deadline. The key challenge will be to assess if references in client communications are \u201cconsistent with\u00a0the sustainability profile of the product or service\u201d and are \u201cproportionate and not exaggerated\u201d, as this is a highly subjective, complex and nuanced judgement in most cases.<\/p>\n<p>We recommend that firms document an anti-greenwashing assessment of their client communications in a structured and detailed way, in order to demonstrate to the regulator that they have approached compliance with the new rule in line with PRIN 2 \u201cto conduct it business with due skill, care and diligence\u201d.<\/p>\n<p>Our recommended areas of focus include:<\/p>\n<ul>\n<li>Assessing client communications including websites, marketing materials, pitchbooks, mobile apps, fact-sheets, terms and conditions, offering documents<\/li>\n<li>Training marketing teams on the practical implications of the new rule<\/li>\n<li>Updating compliance manuals<\/li>\n<li>Reviewing fund approval processes<\/li>\n<\/ul>\n<p>We also suggest that a key step in an anti-greenwashing assessment is to screen all client communications to identify the use of sustainability-related terms highlighted in the paper, i.e. \u2018ESG\u2019 (or \u2018environmental\u2019, \u2018social\u2019 or \u2018governance\u2019), \u2018climate\u2019, \u2018impact\u2019, \u2018sustainable\u2019 or \u2018sustainability\u2019, \u2018responsible\u2019, \u2018green\u2019, \u2018SDG\u2019 (sustainable development goals), \u2018Paris\u2011aligned\u2019 or \u2018net zero\u2019.<\/p>\n<h2>How IQ-EQ can help<\/h2>\n<p>To aid compliance with the new FCA rules and requirements, we at IQ-EQ have created pragmatic guidance and practical support materials to help our clients prepare for implementation, including tailored SDR training presentations and anti-greenwashing assessments of client communications.<\/p>\n<p>If you\u2019d like to discuss SDR and the proposed anti-greenwashing rule, or find out more about the support available from IQ-EQ\u2019s expert compliance consulting and technical regulatory reporting teams, please get in touch.<\/p>\n            <\/div>\n<\/section>\n\n<section class=\"related-section related-section--people related-section--centered standard-spacing\">\n    <div class=\"container\">\n                    <h2>Meet the author<\/h2>\n                <div class=\"cards row-load\">\n            <div class=\"person-card\">\n            <div class=\"bg-img lozad normal\">\n            <img width=\"290\" height=\"192\" class=\"attachment-person_card size-person_card lozad\" alt=\"\" data-src=\"https:\/\/iqeq.com\/wp-content\/uploads\/2023\/04\/Andrew-Shrimpton-Grey--290x192.jpg\" \/>        <\/div>\n        <div class=\"bg-img lozad hover\">\n            <img width=\"290\" height=\"192\" class=\"attachment-person_card size-person_card lozad\" alt=\"\" data-src=\"https:\/\/iqeq.com\/wp-content\/uploads\/2023\/04\/Andrew-Shrimpton-Green--290x192.jpg\" \/>        <\/div>\n        <div class=\"info\">\n                    <h3>Andrew Shrimpton<\/h3>\n                <p class=\"job-title\">Chair, UK Regulatory and Compliance Solutions, UK<\/p>\n        <div class=\"border\"><\/div>\n                    <p class=\"location\">United Kingdom<\/p>\n                <a href=\"#contact-person\" class=\"link link--deepgray email\">\n            Send email        <\/a>\n                    <a href=\"tel:+442073975469\" class=\"link telephone\">\n                +44 207 397 5469            <\/a>\n                            <\/div>\n<\/div>        <\/div>\n        <div class=\"button-wrapper\">\n                    <\/div>\n    <\/div>\n<\/section>","protected":false},"excerpt":{"rendered":"","protected":false},"author":7,"featured_media":7009,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","footnotes":""},"categories":[1],"tags":[],"expertise":[444,17],"service_category":[29],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.5 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The FCA\u2019s new \u2018anti-greenwashing\u2019 rule \u2013 are you ready? 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