A call to arms on greenwashing

Global policy-makers are calling for securities regulators to take action on greenwashing concerns in the asset management industry.

On Tuesday the umbrella group of global regulators, the International Organization of Securities Commissions (IOSCO), published a set of recommendations for regulators that aims to tackle the issue of greenwashing in particular, and investor protection generally, when it comes to ESG investing and the asset management industry.

The report, which was drafted by the IOSCO Task Force on Sustainable Finance, “aims to improve sustainability-related practices, policies, procedures and disclosures in the asset management industry,” it said.

Among other things, the report calls on regulators to take action to improve product-level disclosure and supervisory expectations for asset managers, help develop standardized terminology and ensure adequate supervisory and enforcement tools to confirm compliance with their requirements.

According to the report, research by the IOSCO task force also found that in about half of the jurisdictions reviewed, regulators don’t have sustainability specific rules and instead use generic rules to address sustainability-related risks in asset managers’ investment products.

Even in jurisdictions that do have specific ESG rules, regulators typically rely on existing supervisory and enforcement tools to address sustainability-related misconduct.

“Asset managers, who are a critical part of the sustainable finance ecosystem, play a major role in helping investors achieve their investment objectives,” said Ashley Alder, chairman of IOSCO and CEO of the Hong Kong Securities and Futures Commission.

“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,” he said.

IOSCO said a separate report will be published later this month setting out recommendations for ESG data and ratings providers.

“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,” said Erik Thedéen, head of the Swedish Financial Supervisory Authority and chair of the sustainable finance task force.

“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,” he said.

“This report sets out IOSCO’s view of what these expectations should be to support asset managers in addressing current challenges.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.