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Increase Focus on Greenwashing and Substantiating Sustainability Claims

May 14, 2024

On 23 April 2024, the UK Financial Conduct Authority (FCA) published the anti-greenwashing guidance (“Guidance”), which will come into force on 31 May 2024 for all FCA-regulated companies. The anti-greenwashing rule (“Rule”) is part of FCA’s sustainability disclosure requirements (“SDR”) regime and requires all FCA-regulated companies to ensure that their sustainability-related claims, made about the environmental or social characteristics of products and services, are fair, clear and not misleading, as well as consistent with the sustainability characteristics of products and services.

Section 2.17 of the Guidance sets out FCA’s expectations about the Rule, i.e. the four ‘c’s:

  1. Correct and capable of being substantiated
  1. Clear and presented in a way that can be understood
  1. Complete – they should not omit or hide important information and should consider the full life cycle of the product or service
  1. Comparisons to other products or services are fair and meaningful

The FT also reported on 30 April 2024 that an investigation into 20 airlines have been opened by the European Union (“EU”) regulators over potential “misleading greenwashing practices”, where the EU commission was quoted to state concerns over the airlines’ ability to substantiate their sustainability claims. Furthermore, on 6 May 2024, the CBC also reported that the Canadian Competitions Bureau has launched and investigation into Lululemon over greenwashing allegations relating to greenhouse gas emissions.

Examples of challenges faced by organisations when it comes to sustainability reporting include insufficient data, time consuming, failure to set measurable goals, data overload, lack of visibility into the supply chain, etc.  

FRA recommends the following practices with respect to sustainability reporting:

  1. Set measurable goals
  1. Identify data sources that can be used to measure those goals (often more than one source of data is required)
  1. Assess the reliability of those data sources
  1. Collect and analyse the relevant data  
  1. Measure that against the goals set
  1. Obtain third party assurance on the report

FRA Partner Derek Patterson noted that “There is a growing emphasis and pressure on organisations to be able to substantiate their published sustainability claims and data, and to demonstrate that they are walking the walk and not just talking the talk.

Furthermore, as the regulatory landscape for companies increases in complexity, companies should also watch for situations where it is potential caught both under the Guidance and other regulations, such as the new ‘failure to prevent fraud’ offence. FRA Partner Weng Yee Ng stated that “companies will need to tighten up on reporting validation and assurance processes and be vigilant to potential breaches of more than one regulation.

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