As environmental, social and governance (ESG) criteria becomes more important, the International Organisation of Securities Commission (IOSCO) said it is looking to produce a set of global uniform sustainability disclosure standards.
The disparate definitions and guidelines have long been a problem but the increasing popularity of ESG funds among institutional and retail investors is putting pressure on asset managers to factor in sustainability risks when analysing existing and potential investments.
In addition, ESG ratings attracted scrutiny in the UK recently following revelations that fast-fashion retailer Boohoo had positive ESG ratings from MSCI and others despite being accused of poor working practices.
Speaking at an Investment Sustainability and Responsible Investment Virtual Conference, IOSCO secretary-general Paul Andrews said that the “plethora” of sustainability frameworks gives companies a multitude of choice in terms of what ESG risks they report. This makes it difficult to compare one set of company ESG disclosures with another, he added, meaning there is “no common definition of what a sustainable finance product is.”
IOSCO has been seen to be slow in grappling with ESG issues but the regulatory body has stepped up its pace over the last 18 months. In April, it released an extensive report looking at sustainability in finance which identified three key challenges: lack of ESG data and disclosures, greenwashing and how investment managers use ratings, sustainability standards, and make their disclosures.
More recently, IOSCO created a taskforce, which as Andrews notes is “to pick up the themes we have identified, We are going to try to get at the issue of disclosures and try to find a way to harness various different disclosures into something cohesive, more transparent, and hopefully more standardised. We believe it will be a huge value-add to the industry at large.”
Andrews said the task force will work to translate the different standards from around the world into “a more cohesive, more transparent and more standardised” form. The aim is to devise a set of guidelines that are principles-based yet “granular enough to be meaningful”.
As a standard setter, IOSCO’s output will not be legally binding, but it could influence the direction of future rulemaking as global policymakers enter the race to develop their own ESG rule books.