Global securities regulators have proposed a stricter approach to preventing asset managers from ‘greenwashing’ or overstating the climate-friendly credentials of their products to investors.
IOSCO, which groups securities regulators from the United States, Europe and Asia, set out how regulators can better protect investors from greenwashing and what sustainability-related standards the authorities should expect from asset managers.
The volume of money flowing into funds that tout their environmental, social and governance (ESG) attractions has risen sharply, but regulators worry about the lack of reliability and comparability of ESG data asset managers disclose.
“This report sets out IOSCO´s view of the regulatory and supervisory expectations needed to support asset managers in addressing these challenges,” IOSCO chair Ashley Alder said in a statement on Wednesday.
While many asset managers backed the voluntary sustainability disclosures from the global Taskforce on Climate-Related Financial Disclosures (TCFD), it was not an indication of “real action” by the sector, IOSCO said.
The shock caused by COVID-19 pandemic and its disruptions to the economy has prompted investors to search out sustainable products that can withstand market shocks, IOSCO said.
“In the ‘race to promote their green credentials,’ some asset managers may therefore misleadingly label products as sustainable without meaningful changes in the underlying investment strategies or shareholder practices,” IOSCO said.
Regulators should consider clarifying or issuing new requirements to improve ESG disclosures on products sold by asset managers, the report said.
Industry should be encouraged to develop common terms and definitions for sustainable finance to ensure consistency through the sector globally, it added.
The recommendations have been put out to public consultation until mid-August.
IOSCO’s 130 member jurisdictions cover more than 95% of the world’s securities markets and commit to applying the watchdog’s recommendations.
The watchdog is also looking at ways to better how companies improve their own ESG disclosures, and how raters of corporate ESG performance operate.