The Board of the International Organization of Securities Commissions (IOSCO) is requesting feedback on proposed recommendations about sustainability-related regulatory and supervisory expectations in asset management.
The IOSCO Consultation Report on Recommendations for Sustainability-Related Practices, Policies, Procedures and Disclosure in Asset Management (Consultation Report) focuses on investor protection issues and proposes that securities regulators consider setting regulatory and supervisory expectations for asset managers regarding sustainability-related risks and opportunities.
The recommendations cover five areas:
- asset manager practices, policies, procedures and disclosure
- product disclosure
- supervision and enforcement
- financial and investor education
The recommendations aim to address various challenges, such as existing gaps in skills and expertise and the risk of fragmentation caused by divergent regulatory approaches. These challenges may further contribute to a lack of comparability for sustainability-related products, creating difficulties for investors’ monitoring and decision-making, and therefore facilitating greenwashing.
The Consultation Report outlines the types of greenwashing at the asset manager and product levels, describes the different regulatory approaches taken by securities regulators to address sustainability-related risks and opportunities and provides an overview of the financial and investor education initiatives conducted by regulators.
The Consultation Report discusses asset managers’ sustainability-related practices and firm level disclosures, which are broadly categorised into the following areas, consistent with the Task Force on Climate-related Financial Disclosures Recommendations (TCFD Recommendations): governance, strategy, risk management, and metrics and targets.
The Consultation Report also highlights a clear need to address the challenges associated with the lack of reliability and comparability of data at the corporate level and the ESG data and ratings provided by third-party providers. The recently published Report on Sustainability-related Issuer Disclosures addresses data gaps at the corporate level, while a separate IOSCO report, to be published in July, will cover the proliferation of data and ESG ratings providers.
Ashley Alder, IOSCO Chair and Chief Executive Officer of the Securities and Futures Commission (SFC) of Hong Kong, said: “The number of ESG investing and sustainability-related products has risen significantly in recent years, magnifying some crucial challenges, including concerns about the consistency and comparability of sustainability-related information and greenwashing. This report sets out IOSCO´s view of the regulatory and supervisory expectations needed to support asset managers in addressing these challenges. It follows IOSCO’s publication earlier this month of its vision for a global baseline of consistent and comparable investor-focused sustainability disclosure standards under the IFRS Foundation, which will also help the asset management industry consider climate and sustainability-related issues in the investment process.”
Erik Thedéen, Chair of the IOSCO Sustainable Finance Task Force and Director General of Finansinspektionen of Sweden, said: “Asset managers are at the heart of the investment chain and play a central role in the eco-system of sustainability-related information. Sustainability- related policies and frameworks can therefore help ensure that asset managers take sustainability-related risks and opportunities into consideration and integrate them into their decision-making process. Given the accelerated pace of developments and the interest in converging on a common global baseline, the consultation report refers to the TCFD Recommendations which asset managers could consider for their sustainability-related policies.”