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The FCA has finalised its guidance on the Anti-Greenwashing Rule.

You can read the full document yourself here.

This applies to all firms communicating in respect of a financial product or service’s sustainability
characteristics, to persons in the UK – and it comes into legal effect in 5 weeks’ time.

The guidance makes it very clear that any reference to sustainability characteristics must be “capable of
being substantiated” & also “complete”.

It also makes clear that substantiating a claim means evidence can be provided to show that a claim was
“accurate at the time it was made” and that this is an “ongoing” requirement, warning “firms should
think carefully about whether they have the appropriate evidence to support their claims”.

The FCA sets out some examples of greenwashing. We think these are very pointed – they relate to
claims we know many asset management firms are currently making (e.g. we have observed the second
claim made for funds, using MSCI ratings, rather than for benchmarks).

It is clear that from June onwards, this is no longer acceptable.

Let us cite 2 examples given by the FCA:

1. “In the promotions for a fund, an investment manager prominently displays a claim that all
   investments are reviewed for their sustainability characteristics. However, not all investments are
   systematically reviewed for their sustainability characteristics…. Should the investment manager wish to
   make this claim, all their investments should be consistently reviewed for their sustainability
   characteristics, and the investment manager should hold evidence to demonstrate how they do this and
   how the review is factored into their decision-making process.”
2. “A commonly tracked benchmark claims to be ‘sustainable’, by excluding companies with ESG ratings
   ‘lower than 3’. The benchmark administrator does not specify what the rating aims to assess, for
   example, whether it assesses sustainability-related risks or impact. It also does not specify the scale the
   rating uses, which could be 110, and does not disclose the rationale for choosing an ESG score of 3 as the
   appropriate threshold. It could, in reality, not be a high bar.”
   

If enforced firmly, this rule could have a huge impact.

Many investment managers for example are producing detailed ESG reports for their clients at the end of
each quarter – but the FCA will want to see evidence of how ESG assessments influenced their
investment decisions.

Currently, many firms will struggle to do this, or even produce evidence that they conduct regular
sustainability reviews for every investment. Bearing in mind that this rule applies not just to marketing
materials, but also to any private report sent to any existing UK client, this means these firms will either
have to tighten their processes considerably or drop all ‘sustainable investments’ claims.

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The above opinion piece was written by Shai Hill, the CEO of Integrum ESG and a leading voice in the
sustainable finance space.

He has over 20 years of experience in financial markets, having worked in several influential roles
including being the Head of European Research at Macquarie Group.