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IOSCO Proposes Sustainability Rules for Asset Managers

Recommendations for securities regulators cover practices, product disclosure, supervision and enforcement, terminology, and investor education.

The International Organization of Securities Commissions (IOSCO) is requesting feedback on proposed recommendations about sustainability-related regulatory and supervisory expectations in asset management.

The consultation report, issued on 30 June, 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.

IOSCO recommends that securities regulators:

  • set regulatory and supervisory expectations for asset managers as to sustainability-related practices and related disclosures
  • improve product-level disclosure by expanding on existing regulatory requirements or creating new ones
  • have supervisory and enforcement tools to ensure compliance by asset managers and to address breaches
  • encourage the development of common sustainable finance-related terms and definitions
  • promote sustainability-related investor education initiatives

The recommendations aim to address 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, IOSCO said.

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.

It also discusses asset managers’ sustainability-related practices and firm level disclosures, which are broadly categorised into the following areas, consistent with the 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 consultation report, available here, is open for comment until 15 August 2021.

A 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.

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