IOSCO, the leading international policy forum and standards setter for securities regulators, announced today the publication of a new set of recommendations for regulators and policymakers to guide their supervisory role regarding sustainability-related practices, policies, procedures, and disclosures in the asset management industry.
The recommendations come as major capital flows are being directed towards sustainable investments, resulting in a major proliferation in ESG-themed products and strategies. While this proliferation has provided investors with significant growth in their options for ESG investments, it has also raised challenges for regulators to address issues such as the need for consistent, comparable, and decision-useful information, and the rising risk of greenwashing, which threatens to erode trust 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. Greater clarity on regulatory guidance is needed 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 investment.”
IOSCO’s recommendations focus on five key areas, including setting expectations for asset managers regarding the development of policies, procedures, and disclosures relating to material sustainability-related risks and opportunities, disclosure for sustainability-related products and sustainability risks in all products, assessing the compliance of asset managers’ sustainability-related products with regulatory requirements, the development of common terminology for sustainable finance terms and ESG approaches, and promoting financial and investor education initiatives relating to sustainability.
According to IOSCO, each of the recommendation areas can help in tackling greenwashing, helping investors to better understand the sustainability features and potential risks associated with EGS-themed and other investment products, and ensuring that products that identify themselves as sustainability-related through their names are accurately reflecting their focus on sustainability.
Erik Thedéen, head of the Swedish Financial Supervisory Authority, and Chair of IOSCO’s Sustainable Finance Taskforce said:
“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.”