As demand for more sustainable investments rises, global securities regulators are seeking to address emerging investor protection issues.
The International Organization of Securities Commissions (IOSCO) has published a report on the challenges climate-related issues pose to regulators’ goals of ensuring investor protection and fair and efficient markets, and curbing systemic risk.
Among other things, the report points to a lack of common reporting and disclosure standards, the risk of “greenwashing” — firms misleading investors about their green credentials — and other challenges to investor protection that accompany increased demand for ESG investments.
The risk of greenwashing is aggravated by the existence of multiple voluntary disclosure frameworks, which may lead to increased investor confusion as issuers and asset managers “cherry-pick” which initiatives to use.
“Investor protection issues may also arise from a lack of effective assurance processes to ensure that investors are not misled about the sustainable practices of a company,” the report said.
Many issuers and asset managers operate in different markets, which makes them subject to a variety of regulatory regimes and possibly participating in multiple regional, or international disclosure initiatives.
“This 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,” IOSCO said.
In particular, IOSCO identified a need to improve the comparability of sustainability-related disclosures.
“The 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 said.
IOSCO reported that its board has established a task force on sustainable finance that will seek to improve sustainability-related disclosures from issuers and asset managers, increase global coordination and analyze related investor protection issues.
“One of our main objectives is to improve the quality of climate-related disclosures,” said Erik Thedéen, director general of Sweden’s Finansinspektionen, who is chairing the IOSCO task force. “We are looking forward to engaging with other relevant stakeholders and standard-setters to discuss the best approaches for taking this work forward.”