Iosco consults on substainability practices and disclosures in asset management
Iosco's consultation report flags up investor protection issues with the aim of improving sustainability-related practices, policies, procedures and disclosures in the asset management industry. Its recommendations encompass five areas: asset manager practices, policies, procedures and disclosure; product disclosure; supervision and enforcement; terminology; financial and investor education.
Areas covered include greenwashing at asset manager and product level. On this matter, Iosco provides examples like that of an asset manager that does not take into account ESG criteria in its funds’ investment processes discusses on its website and in its marketing materials its sustainability-related initiatives and views on sustainability. This without making clear that its funds do not engage in ESG investment strategies or take climate-related risks into account.
Ashley Alder, Iosco chair and CEO 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.”
The consultation report also underlines the need to address the challenges linked to the lack of reliability and comparability of data at the corporate level and the ESG data and ratings provided by third-party providers.
“With the growing use of ESG data and ratings from data providers, there may be systemic over-reliance from asset managers on opaque ESG data and ratings from third-party providers,” noted Iosco in the report. The regulatory body said it is aware of “the inadequate level of disclosures by data and rating providers around their methodologies, as well as the reliance on such providers to fill in the gaps in corporate-level disclosures.”
The recommendations also aim to address challenges such as existing gaps in skills and expertise and the risk of fragmentation caused by divergent regulatory approaches.