What you need to know about the new anti-greenwashing rule

The Financial Conduct Authority has new rules coming into force to protect investors from greenwashing. We explain how these new rules will work.

28th May 2024 09:43

Molly Thompson from interactive investor

In recent years, the rise of environmental and social consciousness has led to a surge in sustainable investing, with more investors seeking to align their portfolios with their values.

However, amid the wave of sustainable product launches, concerns about greenwashing have become increasingly prominent. Studies have found that almost half of investors have some concerns about greenwashing when choosing investments.

Learn more: Sustainable ISA Portfolio Ideas | Sustainable Investment Funds | Ethical SIPPs

To address this, the Financial Conduct Authority (FCA) published the new Sustainability Disclosure Requirements and investment labels regulation in 2023, which includes the new anti-greenwashing rules. Coming into effect on 31 May 2024, the aim of the anti-greenwashing rules is to protect retail investors by increasing transparency and integrity in the sustainable investment industry.

What is greenwashing?

Greenwashing refers to the misleading or exaggerated claims made by companies or financial products regarding their environmental or social credentials.

This could involve false information on the environmental or social benefits of an investment or overstating the sustainability credentials of an investment product.

What are the new anti-greenwashing rules?

The new rules seek to combat greenwashing by imposing stricter requirements on financial firms when marketing their sustainable investment products. Under the rules, all authorised firms must ensure that their sustainability-related claims are clear, fair and not misleading. Claims must be consistent with the sustainability characteristics of the products, including how they are defined, measured and verified.

For retail investors, this means greater transparency and reliability when looking for sustainable investment options. Instead of being swayed by vague or unsubstantiated claims, investors can now expect to receive detailed information about the environmental or social impact of their investments. The rules encompass claims made in statements, assertions, strategies, targets, policies, information and images.

The FCA asks that sustainability references are:

Correct and capable of being substantiated
Clear and presented in a way that can be understood
Complete with no information omitted or hidden
Comparisons to other products are fair and meaningful

The introduction of FCA's rules is a positive development for the sustainable investment industry and retail investors wanting to make better informed investment decisions. The stricter requirements will hold firms accountable to their claims, promote transparency and reliability and combat greenwashing across the investment industry.

The anti-greenwashing rules are part of a wider package of new regulation for the sustainable investment industry including:

Sustainability Disclosure Requirements and investment labels – coming into effect 31 July 2024
Naming and Marketing Rules – coming into effect 2 December 2024.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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