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ICMA Issues Greenwashing Risks Analysis

The International Capital Market Association (ICMA) has published a new paper on market integrity and greenwashing risks in sustainable finance. The paper presents an analysis of greenwashing concerns in the sustainable finance market from a global perspective, to promote industry dialogue and address the “twin risks” of market complacency and regulatory overshoot. According to ICMA, greenwashing is not prevalent in the sustainable bond market, but is an issue in the sustainable funds space and there are particular concerns that references to sustainability in fund names can mislead investors. The paper noted that several factors have contributed to greenwashing risks in the sustainable fund industry, including an underestimation of the difficulties involved in developing and implementing a sustainable investment methodology, premature marketing, and an immature regulatory framework. For both the sustainable bond and sustainable fund markets, ICMA said there are “implementation and usability challenges” that regulators will need to address. The paper also offered five high-level recommendations to policymakers and regulators for addressing market integrity and greenwashing risks in sustainable finance. These recommendations include focus on “actionable” areas of concern in sustainable finance, such as lack of ambition in the sustainable bond market or misleading labelling of sustainable funds, and helping improve the availability of data on market integrity in both the sustainable bond and fund market. Additionally, it recommended leveraging best practices already developed by the market when voluntary guidance may be considered insufficient to address integrity concerns and greenwashing risks. 

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