Parameters around the naming of sustainability-related products are one of the ideas global securities regulators have proposed in a consultation about investor protection issues arising in connection with the growth of ESG investing and sustainability-related products.
According to umbrella group IOSCO, various challenges, such as a lack of consistency in terminology, facilitate greenwashing.
It distinguishes between greenwashing at asset manager level, and at product-level, identifying possible types and examples, of both. Practices may vary in scope and severity, it said.
“Perhaps one of the most prevalent types of greenwashing,” according to the report, is where misleading claims are made about the sustainability-related performance of a product.
IOSCO recommended product disclosure as one of the areas where regulatory requirements or guidance should be clarified, expanded, and/or created.
It flagged the option of setting parameters around the naming of sustainability-related products, specifically asking whether naming parameters should permit the product name to reference sustainability only if the investment objectives refer to sustainability.
With regard to product disclosure IOSCO also mentioned content requirements for marketing materials and communications, including websites.
According to IOSCO, greenwashing can occur where a product’s name refers to sustainability but its investment objectives do not, or its use of ESG strategies is limited.
In addition to product disclosure, IOSCO’s recommendations address supervision and enforcement, terminology, financial and investor education, and asset manager-level practices, policies, procedures and disclosure.
The group said its recommendations aimed to address challenges such as gaps in skills and expertise, and the risk of fragmentation caused by divergent regulatory approaches.
“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,” said Ashley Alder, IOSCO chair and CEO of the Securities and Futures Commission of Hong Kong.
“This report sets out IOSCO´s view of the regulatory and supervisory expectations needed to support asset managers in addressing these challenges.”
For IOSCO, the work on greenwashing is also connected to its work on sustainability-related issuer disclosures, and ESG ratings and ESG data providers. A report on the latter is due to be published this month.
IOSCO is seeking feedback on its consultation report by 15 August.
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