On 2 November 2021, the International Organisation of Securities Commissions (IOSCO) published a final report containing a set of recommendations on sustainability-related practices, policies, procedures and disclosure in asset management. The final report also sets out the findings from IOSCO fact finding exercises that included a survey of its members concerning regulatory and supervisory approaches relating to sustainability-related practices and disclosures at both the asset manager and product levels, as well as regulatory and supervisory oversight in this area.
The final report acknowledges that there are challenges associated with the growth of ESG investing and sustainability related products, including a need for more consistent, comparable and decision-useful information and the risk of greenwashing. The final report focuses on these issues and makes the following recommendations to securities regulators and policy makers:
- Asset manager practices, policies, procedures and disclosure: set up regulatory and supervisory expectations of asset managers regarding development and implementation practices, policies and procedures relating to material sustainability-related risks and opportunities and related disclosure.
- Product disclosure: clarify, expand or create new regulatory requirements to improve product-level disclosure to help investors better understand sustainability-related products and material risks for all products.
- Supervision and enforcement: include supervisory tools to monitor and assess whether asset managers and sustainability-related products are in compliance with regulatory requirements and enforcement tools to address any breaches.
- Terminology: encourage industry participants to develop common sustainable finance-related terms and definitions throughout the global asset management industry.
- Financial and investor education: promote or enhance financial and investor education initiatives relating to sustainability.
Greenwashing refers to the practice by asset managers of misinterpreting their sustainability-related practices or the sustainability-related features of their investment products. The following recommendations in the final report are intended to help prevent greenwashing:
- Requirements relating to the disclosure of material risk for sustainability-related products will enable investors to better understand the potential risks associated with the product and the impact of those risks on its performance.
- Requirements relating to naming for sustainability-related products will ensure the names accurately reflect the products focus on sustainability.