Greenwashing is one of the biggest risks to the financial markets, and the lack of global legally binding definition adds a challenge to regulators who want to address malpractices, a report from the International Organisation of Securities Commissions (IOSCO) has found.
The report, which is based on a survey of IOSCO members, reveals that the growth of ESG investing and similar products has led to several challenges, including data gaps, transparency concerns, the reliability of ESG ratings, lack of consistency in terminology, as well as “evolving regulatory approaches”.
“While some of these challenges are currently being addressed, greenwashing remains a fundamental market conduct concern that poses risks to both investor protection and market integrity,” the report states.
The organisation said there has also been an increase in other malpractices besides greenwashing, such as greenhushing and green-bleaching. Greenhushing is when companies underreport their green credential to evade scrutiny, while green-bleaching is when asset managers invest in sustainable activities but do not refer to them as such to avoid regulatory requirements. None of the survey respondents had rules or frameworks to address these malpractices, IOSCO said.
To address greenwashing risks, regulators need to put into place educational and awareness measures, which many jurisdictions are already doing, the organisation said. In addition, there is a need for cross-border cooperation, including sharing data and information.
“To ensure a healthy global sustainable finance market, there is a need for reliable, consistent, and comparable sustainability related information, while related ESG products should be marketed and managed in a way that does not undermine investors’ trust,” IOSCO said in its report.
Greenwashing is an issue many central banks and financial regulators have taken steps to combat in recent months. The UK’s financial watchdog released an anti-greenwashing rule, while the US Securities and Exchange Commission cracked down on misleading marketing practices by implementing a “names rule” change to ensure investment fund names match the majority of what they invest in.
Meanwhile, Germany’s banking regulator BaFin has said it plans to tackle greenwashing and Ireland’s central bank deputy governor has warned that regulators need to address greenwashing to ensure the integrity of ESG products.
This page was last updated December 21, 2023
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