November 4, 2021

IOSCO and FCA publish papers to address sustainability disclosures by asset managers

On November 2, 2021, the Board of the International Organization of Securities Commissions (IOSCO), published a Final Report that provides recommendations aimed at setting regulatory and supervisory expectations for assets managers in an effort to address the risk of greenwashing, the practice by certain asset managers to misrepresent sustainability-related practices or features or the performance of investment products to investors.  According to IOSCO, the practice varies widely in scope and severity, from the inappropriate use of certain sustainability-related terms in offering documents to deceptive marketing practices that deliberately misrepresent a product’s sustainable impact.  This purpose of the report is to protect investors by providing asset managers with list of best practices in order to ensure transparency and the disclosure of essential fund information to encourage sound investment decisions.

IOSCO issued the report in response to recent challenges associated with the growth of ESG investing and sustainability-related products that are related to the risk of greenwashing, but are also associated with a need for consistent, comparable and reliable information at the corporate issuer level and by third-party providers of  ESG data and ratings that also enable investors to properly evaluate investment risks and opportunities.  The report, which is based on feedback received from IOSCO after the publication of its Consultation Report in July 2021, focuses on five areas of investor protection, including asset manager practices, policies, procedures and disclosure; product disclosure; supervision and enforcement; terminology; and financial and investor education.  IOSCO also revealed plans to publish a separate report in late November to cover recommendations for ESG data and ratings providers.

On November 3, 2021, the UK Financial Conduct Authority (FCA) also released a Discussion Paper on a similar topic, seeking input from members of the financial sector regarding new proposed sustainability disclosure requirements (SDRs) for asset managers and FCA-regulated asset owners, and a new classification and labelling system for sustainable investment products.  The proposed SDRs form part of the UK Government’s Greening Finance: A Roadmap to Sustainable Investing published in October 2021, and will help the FCA develop proposed rules intended for consultation in Q2 2022.  The FCA requests that comments on the Discussion Paper be received by January 7, 2022.

IOSCO Press Release | Recommendations on Sustainability-Related Practices, Policies, Procedures and Disclosure in Asset Management | FCA Press ReleaseSustainability Disclosure Requirements (SDR) and Investment Labels