Arming investors to guard against greenwashing

Regulators should use education for both investors and advisors as a bulwark against greenwashing, according to a new report from the International Organization of Securities Commissions (IOSCO).

The umbrella group of global securities regulators issued a report detailing efforts to enhance investor education in sustainable finance to help investors understand greenwashing, and to help them protect themselves against misleading information about investment products’ green credentials.

IOSCO noted that regulators around the world have “increasingly focused on whether sustainable finance claims are accurate and if investors have the information they need to evaluate sustainable finance products.”

Among other things, the report said that “regulators should consider” educational activities for both retail investors and industry, including: education designed to ensure that investors know how to obtain sustainability-related information and to determine whether specific products match their sustainability preferences; supporting industry efforts to help investors understand ESG certifications, labelling and ratings; and training for advisors on greenwashing and protecting investors.

The report also identifies some of the challenges, and best practices, for developing educational content in this area.

“Financial education is a key element to enhance investor protection, and it complements the policies, regulations, oversight and enforcement actions that securities regulators may undertake to support the sound and proper development of sustainable finance markets and products,” said Ashley Alder, chair of IOSCO’s board and CEO of the Hong Kong Securities and Futures Commission (SFC), in a release.

“Financial education also increases investor confidence to participate in innovative financial markets, such as sustainable finance, on a properly informed basis,” he added.

“Sustainable finance offers new opportunities for retail investors, locally and globally,” said Pasquale Munafò, chairman of the IOSCO Committee on Retail Investors. “But it is crucial that they understand what a sustainable product is, as well as its different opportunities and risks, including the threat of greenwashing.”

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.