National financial regulators should consider setting regulatory and supervisory expectations for asset managers around sustainability-related risks and opportunities, according to a new report by the International Organization of Securities Commissions (IOSCO).
The organization’s membership – which regulates more than 95% of the world’s securities markets in 130 jurisdictions – said the recommendations aimed to address existing gaps in skills and expertise.
As the challenges of reducing global emissions and limiting global warming become clearer, IOSCO has attempted to help regulators set expectations and assist asset managers in aligning with the transition to a low-carbon economy.
The IOSCO report covers asset manager practices, policies, procedures and disclosure, product disclosure, supervision and enforcement, terminology, and financial and investor education.
Ashley Alder, IOSCO chair and CEO of the Securities and Futures Commission of Hong Kong, said: “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."
The consultation also discusses asset managers’ sustainability-related practices and firm level disclosures, recommending alignment with the guidelines set by the Task Force on Climate-related Financial Disclosures.
“Asset managers are at the heart of the investment chain and play a central role in the eco-system of sustainability-related information,” said Erik Thedéen, director general of Sweden’s financial regulator and chair of IOSCO’s Sustainable Finance Task Force. “Sustainability related policies and frameworks can therefore help ensure that asset managers take sustainability-related risks and opportunities into consideration and integrate them into their decision-making process.”
Lack of reliability and comparability of data at the corporate level and ESG data and ratings provided by third-party providers were also highlighted as challenges for regulators.
The pressure on investors to address climate change has soared in the past few years. The challenge has been cited as the “biggest challenge of ESG investing” according to a Schroders Institutional Investor study.
Governments have also recognized the challenges greenwashing brings. In June, the UK government set up a Green Technical Advisory Group which will support investors and provide advice to the government, consumers and businesses.