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(Article from Registered Funds Regulatory Update, January 2022)

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The Board of the International Organization of Securities Commissions (IOSCO), which the SEC is a member of, published a final report detailing recommendations for asset managers on sustainability and ESG-related policies and procedures, practices and disclosure. The report addresses the difficulties in implementing sustainability and ESG-related initiatives, including the need for consistent, comparable and decision-useful information and the risk of greenwashing (i.e., the practice by asset managers of misrepresenting their own sustainability-related practices or features of their investment products). The report makes the following recommendations to securities regulators and policymakers:

• Practices, policies, procedures and disclosure: set regulatory and supervisory expectations for asset managers regarding the development and implementation of practices, policies and procedures relating to material sustainability-related risks and opportunities and related disclosure. The regulatory and supervisory expectations should address governance around material sustainability-related risks and opportunities, how material sustainability-related risks and opportunities are factored into the asset manager’s investment strategies and process, how the asset manager identifies, assesses and manages material sustainability-related risks, the metrics and targets used to assess and manage relevant material sustainability-related risks and opportunities where such information is material.
• Product-level disclosure: create, clarify or expand regulatory requirements or guidance to improve product-level disclosure to help investors better understand sustainability-related products and material sustainability-related risks for all products. The requirements or guidance should include a product authorization system that sets disclosure expectations for sustainability-related products, parameters around naming and labels, disclosure in product offering documents, disclosure of material risks, content requirements for marketing materials and communications and periodic reporting.
• Supervisory and enforcement tools: have supervisory tools to monitor and assess whether asset managers and sustainability-related products are in compliance with regulatory requirements and enforcement tools to address any breaches of such requirements. Supervisory and enforcement tools should be designed to prevent greenwashing at both the asset manager and product levels and promote investor confidence in asset managers that take sustainability-related risks and opportunities into consideration.
• Standard terminology and definitions: encourage industry participants to develop common sustainable finance-related terms and definitions, including related to ESG approaches, to ensure consistency throughout the global asset management industry.
• Education initiatives: promote or enhance existing financial and investor education initiatives relating to sustainability to protect investors from greenwashing, promote awareness of sustainability-related risks and encourage the growth of sustainability-related asset management products.

Final Report, The Board of the International Organization of Securities Commissions, Recommendations on Sustainability-Related Practices, Policies, Procedures and Disclosure in Asset Management (Nov. 2021), available at: https://www.iosco.org/library/pubdocs/pdf/IOSCOPD688.pdf.