Setting regulatory and supervisory expectations for asset managers is fundamental to address greenwashing concerns, says the International Organization of Securities Commissions (IOSCO).
On November 2nd, the Board of the International Organization of Securities Commissions (IOSCO) has published a set of recommendations about sustainability-related practices, policies, procedures and disclosures in the asset management industry.
Ashley Alder, Chairman of IOSCO and CEO of the Hong Kong SFC, said: “Asset managers, who are a critical part of the sustainable finance ecosystem, play a major role in helping investors achieve their investment objectives. Regulatory guidance on how asset managers consider material sustainability-related risks and opportunities, integrate them into the decision-making process, and make disclosures, will allow investors to understand the impact of their investments.”
There have been challenges associated with the growth of ESG investing and sustainability related products in recent years, including a greater need for consistent, comparable, and decision-useful information and the risk of greenwashing. The report, which reflects the feedback received in response to the consultation report that was published in June 2021, focuses on these investor protection issues and covers five areas: asset manager practices, policies, procedures and disclosure; product disclosure; supervision and enforcement; terminology; and financial and investor education.
The report also recognizes a clear need to address the challenges associated with the lack of reliability and comparability of data at the corporate issuer level and the ESG data and ratings provided by third-party providers to enable the investment industry to properly evaluate sustainability-related risks and opportunities. The Report on Sustainability-related Issuer Disclosures, which was published in June this year, addresses data gaps at the corporate issuer level.
Erik Thedéen, head of the Swedish Financial Supervisory Authority, is the Chair of the Sustainable Finance Taskforce set up by the IOSCO Board, which issued this report. He commented: “Our common objectives as securities regulators are to protect investors, as well as to support market integrity, by ensuring transparency and disclosure of information that is material to investment decisions. Improving underlying data is critical but not sufficient if asset managers do not properly integrate sustainability risks into their risk management procedures – or if they misrepresent the ESG features or performance of their funds to their investors. Setting regulatory and supervisory expectations is therefore fundamental to addressing issues relating to risk mismanagement and greenwashing. This report sets out IOSCO´s view of what these expectations should be to support asset managers in addressing current challenges.”
Greenwashing refers to the practice by asset managers of misrepresenting their sustainability-related practices or the sustainability-related features of their investment products. Such practices may vary in scope and severity, from the inappropriate use of specific sustainability related terms used in an offering document, to misrepresentations about an entity’s sustainability-related commitments, to deceptive marketing practices that deliberately misrepresent a product’s sustainable impact.
The recommendations in the report cover a range of areas, all of which can help prevent greenwashing. For example, requirements relating to the disclosure of material risks for sustainability-related products can help prevent greenwashing by enabling investors to better understand the potential risks associated with the product and the impact of those risks on a product’s performance, including sustainability-related performance. Similarly, requirements relating to naming for sustainability-related products can help prevent greenwashing by ensuring that products that identify themselves as sustainability-related through their names are accurately reflecting their focus on sustainability.
The recommendations also address the risk of greenwashing through other areas, including supporting sustainability-related financial and investor education initiatives and ensuring that there are adequate supervisory and enforcement tools to monitor and assess compliance with requirements in this area and address breaches of such requirements.
Press release by IOSCO
Publié le 09 novembre 2021