Greenwashing is the practice of making sustainability or environmental claims that are misleading, exaggerated or not supported by evidence. In financial services, it covers a wide range of conduct, from labelling a fund as “sustainable” without meeting defined criteria to vague corporate claims about environmental commitment that cannot be substantiated.
The regulatory framework
The FCA has built its response to greenwashing on two pillars:
The anti-greenwashing rule (effective 31 May 2024). This rule in PRIN 2A requires all FCA-authorised firms, including those that do not use ESG labels, to ensure that any reference to the sustainability characteristics of a product or service is consistent with the product’s or service’s actual sustainability profile, and is clear, fair and not misleading. It applies to communications directed at clients in the UK, including websites, marketing materials and fund documentation.
Sustainability Disclosure Requirements (SDR) and investment labels (effective December 2024 for labels). The SDR framework establishes four investment labels (Sustainability Focus, Sustainability Improvers, Sustainability Impact, and Sustainability Mixed Goals) with detailed criteria that funds must meet before using each label. Use of a label without meeting the criteria is a greenwashing breach. The SDR also imposes disclosure requirements and sets out what information must be provided to retail and institutional investors about sustainability claims.
Conduct Rules and Consumer Duty connection
Greenwashing can constitute a breach of Individual Conduct Rule 1 (integrity) and Individual Conduct Rule 2 (due skill, care and diligence) under COCON, where it involves making claims the individual knows or should know are misleading. Under Consumer Duty, misleading sustainability claims may also breach the consumer understanding outcome and the Cross-cutting Rules, particularly the obligation to enable customers to make informed decisions.
Training implications
Firms making sustainability claims, or whose staff communicate about ESG characteristics in client-facing roles, need training that covers what claims are permitted under the anti-greenwashing rule, what the SDR label criteria mean in practice, how the Consumer Duty consumer understanding outcome applies to sustainability communications, and how to identify and escalate potentially misleading sustainability claims. Our Consumer Duty course covers the consumer understanding outcome that applies to how these claims are communicated to retail customers.