As the demand for products with positive sustainability outcomes grows, both the insurance industry and regulators are giving more attention to the risks of greenwashing. A consumer survey we commissioned last year looking at attitudes to sustainable investment found that for 60% of participants, climate change was a factor in their assessment of potential investments. |
By Rebecca Macdonald, Head of Products and Sarah Clare, Senior Consultant at Hymans Robertson This echoed a trend identified in the Financial Conduct Authority (FCA) 2022 Financial Lives Survey, which found that 74% of adults agreed that environmental issues were important to them. It’s therefore not surprising that ensuring consistency and clarity of information around sustainable investments is high on the FCA’s agenda. The FCA’s policy statement PS23/16 on Sustainability Disclosure Requirements (SDR) looks to tackle this risk through inclusion of an explicit anti-greenwashing rule, due to come into effect from 31 May 2024. This rule aims to help ensure that sustainability claims are “fair, clear and not misleading”, language that mirrors existing requirements under the Consumer Duty principle. However, the anti-greenwashing rule goes further by requiring that claims are consistent with the sustainability profile of the product or service. In this context, the FCA considers both environmental and social characteristics to fall within the definition of sustainability. The SDR policy statement was accompanied by a consultation with additional guidance on the anti-greenwashing rule, setting out five key standards for sustainability claims.
It outlines that these claims should be:
Correct
Capable of being substantiated Clear and presented in a way that can be understood Complete, i.e. they shouldn’t omit or hide important information and should consider the full life cycle of the product of service Comparisons to other products and services must be fair and meaningful. The FCA issued final guidance on the anti-greenwashing rule on 23 April 2024. 69 responses were received in response to the initial consultation, with the FCA noting that most were broadly supportive of the guidance and the overall anti-greenwashing initiative. The key areas of feedback related to requests for examples covering additional sectors, specific examples of good practice and for examples to include both social and environmental scenarios. All of these have been addressed within the final guidance. The final guidance is broadly similar to that issued for consultation, setting out the FCA's expectations and illustrative examples for each of the five standards noted above. Interestingly, neither the consultation nor the final guidance includes any further details on expectations around sustainability claims being consistent with the sustainability profile of the product or service, the “new” part of the SDR requirements. The potential evidence requirements for demonstrating that sustainability claims are consistent with the sustainability profile of the product or service are significant, and there may be additional complexity for firms who use proxy data or assumptions. The final guidance also clarifies that the anti-greenwashing rule will impact all live financial promotions from 31 May 2024, but won’t be applied retrospectively. The anti-greenwashing rule applies to all communications relating to products and services, including statements, strategies, targets and images. However, the risk of greenwashing is not contained within one business function or activity, creating the potential for it to be difficult to assess and manage.
To illustrate the variety of sources of greenwashing, some examples where a firm could fall foul of the requirements include:
failures in internal processes causing errors in the calculation of metrics
vague or unclear wording used within in their policy information lack of integration of sustainability risk leading to actions taken that do not match the firm’s sustainability strategy. While there will be a cost to firms in meeting the FCA’s expectations on anti-greenwashing, the ultimate goal of increasing transparency should help customer engagement and ensure insurance firms consistently apply more rigour when making sustainability claims.
Regulatory outlook
Climate litigation What steps should insurers be taking now?
There are a number of actions firms should be taking now in preparation for the end of May deadline, including:
conducting a thorough review of customer materials to identify any sustainability claims
gathering evidence to support these claims, ensuring sustainability benefits are objectively measurable considering obtaining an external review of your customer materials incorporating greenwashing risk within your risk management framework. |
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