IOSCO published a report that examines the sustainable finance initiatives by the securities regulators and the industry. It offers a detailed analysis of the most relevant international initiatives and third-party frameworks and standards related to the Environmental, Social, and Governance (ESG) factors. The report also identifies a number of improvement areas and articulates the need for IOSCO to play a key role in this area. The report finds that lack of consistency and comparability across third-party frameworks could create an obstacle to cross-border financial activities and raise investor protection concerns.
The report highlights three recurring themes that involve multiple and diverse sustainability frameworks and standards—namely, sustainability-related disclosures, a lack of common definitions of sustainable activities, and greenwashing and other challenges to investor protection. The report indicates that many issuers and asset managers operating cross-border may be subject to different regulatory regimes or participate in multiple regional or international third-party initiatives. The wide variety of regulatory regimes and initiatives, often with inconsistent objectives and requirements, may prevent stakeholders from fully understanding the risks and opportunities that sustainable business activities entail. As a next step, to overcome these identified challenges, IOSCO has decided to establish a Sustainability Task Force with a mandate to address transparency and promote investor protection.
The Task Force will work to improve sustainability-related disclosures made by issuers and asset managers, collaborate with international organizations and regulators to avoid effort duplication, enhance coordination of relevant regulatory and supervisory approaches, and conduct case studies and analyses of transparency, investor protection, and other relevant issues within sustainable finance. The key work of the Task Force will be to:
- Improve sustainability–related disclosures by issuers and asset managers. To this end, the Task Force will identify and develop categories of disclosure that are material for investors and that are capable of falling within the supervisory and regulatory competence of securities regulators.
- Assist IOSCO members to identify and address greenwashing and other investor protection concerns. The Task Force would examine categories of disclosure to assess whether industry specific or more broad metrics would provide decision useful information and comparability between different issuers. The Task Force would also engage with the industry, voluntary third-party disclosure standard-setters and other relevant organizations.
- Address relevant issues within sustainable finance. These issues could include transparency issues among ESG data providers, disclosure of methods and governance among credit rating agencies and ESG rating agencies, practices and experiences of asset managers on the use of sustainability-related factors in investment decisions processes, and risks of greenwashing in the market for sustainable investment products.
Keywords: International, Banking, Securities, ESG, Climate Change Risk, Sustainable Finance, Transparency, Disclosure, Systemic Risk, Sustainability Task Force, Credit Rating Agencies, IOSCO
Sam leads the quantitative research team within the CreditEdge™ research group. In this role, he develops novel risk and forecasting solutions for financial institutions while providing thought leadership on related trends in global financial markets.
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