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Tackling greenwashing and promoting transparency
In the first half of 2022 the topics of promoting transparency and mitigating
greenwashing in sustainable finance were actively discussed by regulators of securities
markets. The importance of these topics and doing what is necessary to create reliable
information on sustainability impacts for investors was stressed during IOSCO Board meeting
held in March 2022 and reflected in IOSCO’s 2022 Sustainable Finance work plan that
strengthens the organization’s commitment to increasing transparency and mitigating
greenwashing. Similarly, The European Securities and Markets Authority (ESMA) prioritises
the fight against greenwashing in its new sustainable finance roadmap for 2022-2021 years.
Indeed, in recent years with the growing demand for ESG investments the lack of
reliability and comparability of material ESG-related data and disclosures has drawn the
attention of many regulators as it creates room for greenwashing. There are different
approaches in defining the term of greenwashing, but generally it refers to market practices,
whereby the publicly disclosed sustainability profile of an issuer and the characteristics and/or
objectives of a financial instrument or a financial product mislead investors or give them a
false impression about how well an investment is aligned with its sustainability goals.
Securities regulators are challenged with this risk of misrepresentation and wrongful
disclosure and mis-selling of ESG-labelled products to final investors which can create
reputational and financial risks for the actors involved and a loss of trust in sustainable finance
products which in turn may also trigger financial stability concerns. Therefore, to contribute
to the transition towards sustainable investments and a sustainable economy, national
regulators and international organisations are taking measures in promoting transparency in
markets through disclosure of material ESG-related information that allows market
participants to identify and assess sustainability-related risks and opportunities.
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To meet this challenge globally the International Sustainability Standards Board
(ISSB), a new standard-setting board of IFRS Foundation, has published the Exposure Draft
IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information
(General Requirements Exposure Draft) which sets out the overall requirements for an entity
to disclose sustainability-related financial information about all its significant sustainabilityrelated risks and opportunities, to provide the market with a complete set of sustainabilityrelated financial disclosures.
General Requirements Exposure Draft has been opened for comments from various
stakeholders until 29 July 2022 and was included in the IOSCO 2022 work plan to develop
sustainable finance. If IOSCO determines that the IFRS Sustainability Standards are fit for
purpose, its decision will provide all 140 IOSCO member jurisdictions with the basis to decide
how they might adopt, apply or be informed by the ISSB standards.
Important steps in tackling greenwashing and promoting transparency have also been
taken at the level of national regulators. For instance, in light of broad set of potential issues
related to greenwashing, ESMA proposed multiple follow-up categories of actions to address
this challenge and defined that investigating this issue to establish a shared understanding
of key concepts, addressing it with coordinated action across multiple sectors, collecting and
studying empirical evidence regarding the functioning of ESG markets and ESG products, as
well as cases of greenwashing, to better understand current and developing market practices
and finding common solutions across the EU will be key to safeguarding investors.
All these positive global developments towards promoting transparency in sustainable
investing are essential and important for the regulatory community to join efforts in ensuring
that markets contribute positively to sustainability challenges at the same time protecting the
interests of investors and securing integrity of financial markets.
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