FCA publishes anti-greenwashing guidance and portfolio management proposals

What does this mean?

Anti-greenwashing guidance

The guidance is designed to help firms understand and implement the anti‑greenwashing rule that was introduced for all FCA-authorised firms in November 2023. 

The final guidance has not changed substantially from the consultation proposals. It contains additional clarifications on scope, two additional illustrative examples and clarifications on the use of visuals (e.g. images, logos and colours).

The guidance outlines the FCA’s expectations for sustainability references, including that:

1. They are correct and capable of being substantiated.
2. They are clear and presented in a way that can be understood.
3. They are complete, i.e. do not omit or hide important information and consider the full product/service life cycle.
4. Comparisons to other products/services are fair and meaningful.

The guidance clarifies that the rule applies to references to environmental and/or social characteristics of financial products and services (including overseas products and services) made when an FCA-authorised firm:

• communicates with clients in the UK in relation to a product or service, or 

• communicates a financial promotion (or approves a financial promotion for communication) to a person in the UK.

Extension of the SDR and investment labels regime to portfolio management

The FCA’s consultation on extending the SDR and investment labels regime to firms providing portfolio management services builds on its initial proposals, which were considered unsuitable because most portfolios are diversified and unlikely to invest only in UK funds. 

The FCA has proposed adding ‘firms[s] providing portfolio management in relation to a sustainability product’ to the list of FCA-regulated firms covered by the regime, capturing firms providing all forms of portfolio management services to UK clients, including the provision of model portfolios, customised portfolios and/or bespoke portfolio management services. 

The proposals are primarily aimed at wealth management services for individuals and model portfolios for retail investors, though firms providing portfolio management services to professional clients would be able to opt in to the labelling regime.

The consultation proposes the following:

• Portfolio management offerings could apply a label if at least 70% of the gross value of the assets within the portfolio are invested in accordance with the sustainability objective, and the other qualifying criteria for the relevant label is met. 

• Portfolio management offerings to retail investors would be subject to the naming and marketing rules. 

• Portfolio managers would be required to produce consumer-facing, pre-contractual and ongoing product and entity-level disclosures in the same circumstances as other in-scope firms, i.e. if applying a label or using sustainability-related terms without a label, and if they meet relevant assets under management (AUM) thresholds. Portfolio managers that do not make disclosures publicly available would still need to provide them to their clients. 

The FCA has proposed broadly the same timelines as for other in-scope firms:

• The labelling and naming and marketing requirements, and associated consumer-facing and pre-contractual disclosures, would come into force on 2 December 2024.

• Ongoing product-level disclosures required from one year later.

• Firms with AUM > £50 billion would need to produce entity-level disclosures by 2 December 2025.

• Firms with AUM > £5 billion would need to start producing entity-level disclosures by 2 December 2026. 

The  main difference for firms providing portfolio management services is that the labelling regime would be introduced on 2 December 2024 rather than 31 July 2024.

What do firms need to do?

Anti-greenwashing guidance

Firms do not have much time to factor the FCA’s guidance into their broader approach before the anti-greenwashing rule comes into force. Firms should take the following steps:

1. Develop a taxonomy of terms and guidance on how terms should be used, informed by the FCA guidance expectations, that is applied internally. 

2. Review relevant communications and, where sustainability-related claims have been made, assess whether they meet the FCA guidance expectations, performing consumer testing in line with the Consumer Duty where appropriate. 

3. Look at how sustainability approaches are communicated internally to relevant teams, especially marketing and sales teams, and ensure that colleagues are aware of the anti-greenwashing rule and guidance, providing training where appropriate. 

Extension of the SDR and investment labels regime to portfolio management

Firms providing portfolio management services should take the following steps to determine how they could implement the proposed requirements:

1. Assess applicability and set the firm’s ambition around applying sustainability labels and using sustainability-related terms in marketing materials.

2. Review existing products and services against the naming and marketing rules, and create a product classification framework that incorporates the labelling and naming and marketing criteria to assess products and inform product development. 

3. Develop an implementation roadmap and upskill staff on changes to policies and procedures, ensuring a repeatable process for producing annual reporting.

Next steps

Anti-greenwashing guidance: The guidance takes effect on 31 May 2024, alongside the anti‑greenwashing rule.

Extension of the SDR and investment labels regime to portfolio management: Firms should provide feedback on the  proposals using the online form by 14 June 2024. The FCA plans to publish its final rules in H2 2024.