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Green paint on brush | AccountingWEB | 'Vital' anti-greenwashing rule comes into effect
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Vital anti-greenwashing rule comes into effect

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With the FCA’s anti-greenwashing guidance coming into force, Deloitte and KPMG have spoken to AccountingWEB about the new rules and the impact they’ll make.

31st May 2024
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The FCA’s anti-greenwashing guidance is designed to stop financial firms from inflating green credentials. It’s been introduced to clarify that sustainability-related claims about products and services “must be fair, clear and not misleading”.

“It gives us an explicit rule on which to challenge firms if we consider they are making misleading sustainability-related claims about their products or services and, if appropriate, take further action,” said the regulator.

“Tackling greenwashing is a priority for us.”

The FCA added that it wants to “protect consumers against greenwashing so they can make informed decisions that are aligned with their sustainability preferences”, noting that it also wants to “create a level playing field” for firms in an evolving market.

The guidance has come into effect today (31 May).

No excuse

Richard Weighell, financial services advisory partner at BDO, believes the FCA “will not accept any excuse regarding lack of time and/or clarity on how to comply”.

Speaking to AccountingWEB, he points towards the regulator’s “prior signposting” and stresses that it has now “made clear its expectations of firms”.

Those with products and services that promote environmental and social characteristics, says Weighell, should “already have started preparations to meet the deadline, based on the draft guidance”.

“The guidelines will impact how sustainability-related characteristics and information will be presented to consumers,” he added. “While the ultimate objective is a more standardised and accessible approach to understand ESG investments to lead to positive sustainability outcomes, the reality is more complex.”

Defining their own view

Weighell noted that ultimately, firms can “still define their own view of sustainability and therefore inconsistency and consumer confusion may continue to exist in the shorter term”.

“Further, from a regulatory enforcement perspective, to a large extent the lack of a taxonomy may lead to subjective judgments from regulators in terms of greenwashing, making it difficult for firms to understand what they can and can't say in terms of sustainability claims.

“In the longer term, the impact can also materialise in increased regulatory scrutiny, litigation and fines.”

Importance of transparency

Jessica Hodges, investment management and wealth sustainable finance lead at Deloitte, told AccountingWEB that the publication of the anti-greenwashing rule guidance “is important in having answered a number of questions that the industry had about the rule, which was first proposed as part of The UK Sustainability Disclosure Requirement (SDR) as laid out by the FCA in December of last year”.

“Fundamentally though, the rule, and the guidance, highlight the importance of transparency in sustainability disclosures, something that is critical in ensuring investors have enough information about a fund or product’s strategy and risk, to enable them to make informed decisions.”

Mike Williams, regulatory partner at Deloitte, stressed that the firm will “take positive advantage of the finalised guidance”.

“Businesses want to put their best foot forward when communicating to consumers on sustainability, but it’s important that organisations – including our own – focus on clear, evidence-based disclosures.

“There is a significant proportion of consumers who want to make positive choices in their investments around sustainability, and it is important that we support and challenge organisations to provide information to those consumers and investors which is clear and balanced.”

So far as the day-to-day goes, Williams expects the guidance to allow Deloitte to “make use of examples of good and poor practice, and to bring to life what the FCA Handbook is trying to achieve from the anti-greenwashing rule, for our own people, as well as for firms we provide services to”.

A vital move

Richard Andrews, head of ESG at fellow Big Four firm KPMG, said to AccountingWEB that there has already been “swift action from the Competition & Markets Authority (CMA) on greenwashing beyond financial services firms, while greenwashing-related enforcement is being introduced by overseas financial services regulators such as Australian Securities & Investments Commission (ASIC)”.

“For the UK to now have clear guidance across the financial services industry is vital.”

He added that the guidance the FCA has provided is “timely, practical and actionable”.

“The types of examples included in the finalised guidance are a sound basis for testing their own internal control frameworks. However, firms should not see the examples as a simple checklist for its products and services, and should ensure they continue to assess greenwashing risk more holistically across what they say, what they sell, and who they serve.”

Andrews stressed that while the new measures won’t be directly applicable to KPMG, they will have relevance to its clients.

“The guidelines have been designed to make an industry-wide impact, as the FCA has provided clear examples and also broader guidance to consider what firms are saying about themselves as part of an overall ‘representative picture’,” he added.

Three key factors

“However, much of the success of implementation will be based on three key factors.”

The first two, he said, include the need to see firms adopting the anti-greenwashing rule holistically, across all their business activities and not just approaching it as a tick-box exercise, with the second being how firms manage subjective and nuanced areas.

“That is, when looking at instances of potential greenwashing inevitably there will be grey areas which fall on a line, whereby they may or may not be construed as greenwashing (eg, use of a particular image),” continued Andrews. “How firms identify, assess, and govern these instances will be important.

“Finally, what will happen if non-compliance occurs? There is an element of the unknown in just what non-compliance means and to what extent the FCA will enforce this (and how severely).

“While this won’t become apparent on day one, being clear in the messaging around how the new guidance is being applied, taking on feedback, and the actual level of enforcement seen in the market will be instrumental in ensuring adoption is to the extent the FCA intends.”

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By FactChecker
31st May 2024 22:37

This may be rich coming from me, but that's an awful lot of lengthy words within convoluted sentences (which typically have lost much meaning before the end of the sentence hoves into view) ... for what basically says:
Firms should stop lying when making claims.

Mind you, when people have job titles like 'investment management and wealth sustainable finance lead', maybe a copy of the Plain English guide would be handy?

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